Mumbai, May 16 Economists expect the Reserve Bank of India's (RBI) dividend to the government to surpass a record over Rs 2.5 lakh crore this year as the central bank earnings, through the sale of dollars to prop up the rupee as it sharply depreciated during 2024-25, are reported to have shot up. This higher profit will be transferred to the government as a dividend in 2025-26.
The previous record dividend transferred to the government stands at Rs 2.1 lakh crore during 2024-25 which helped to keep the fiscal deficit in check, while enabling the Finance Ministry to continue with its expenditure on big ticket infrastructure projects to spur growth and social welfare schemes to uplift the poor.
This was a record jump from the Rs 87,416 crore transferred to the government in 2023-24 for the profit made in 2022-23. Similarly, the government is expected to get another booster shot through the RBI dividend in the current financial year as well.
“Among the RBI’s earnings, forex transactions are expected to be most significant in light of the in light of the central bank’s measures to lower rupee volatility by strong dollar purchases earlier in fiscal 2025 and difference in the current versus historical exchange rate. Add to this the interest income on government securities and earnings from funds extended to banks in midst of previous tight liquidity. "This transfer could amount to a record high at around Rs 2.5-2.7 lakh crore this year,” said Radhika Rao, senior economist at DBS Bank.
Earnings on forex transactions are expected to be substantial with gross dollar sales tracking at $371.6 billion in fiscal 2025 till February compared to $153 billion in fiscal 2024, according to Gaura Sengupta, chief economist at IDFC First bank. She estimates the RBI dividend to be between Rs 2.6 lakh crore to Rs 3 lakh crore, according to an NDTV Profit report.
The higher dividend creates fiscal space of 0.1 per cent to 0.2 per cent of GDP, estimates Sengupta. With support from the higher-than-budgeted RBI surplus and savings on a few expenditure heads, the central government is in a fairly strong position to counter the growth slowdown risks and any potential emergency spending requirements.
Apart from helping to lower the fiscal deficit, the RBI dividend will be a significant infusion to core liquidity in the banking system during the current financial year. This will help to keep interest rates low and allow banks to extend more loans to corporates and consumers to accelerate economic growth and create more jobs.
The RBI board of directors met on Thursday to review the economic capital framework which is the basis for deciding the surplus transfer or amount of dividend to be given to the government. The meeting comes ahead of deciding and approving the surplus transfer to the government.
The transferable surplus is determined on the basis of the ECF adopted by the Reserve Bank on August 26, 2019, as per recommendations of the Bimal Jalan-headed Expert Committee to Review the extant Economic Capital Framework of the RBI.
The Committee had recommended that the risk provisioning under the Contingent Risk Buffer (CRB) be maintained within a range of 6.5 to 5.5 per cent of the RBI's balance sheet.
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