The Reserve Bank of India (RBI) is expected to make another record surplus transfer to the central government for the current financial year.
The RBI is expected to announce on Friday how much money it will transfer to the government. Economists believe the amount could be very high this year, mainly because the RBI earned large profits by selling U.S. dollars while intervening in the foreign exchange market to control the fall in the value of the rupee.
A Reuters survey of 25 economists conducted on May 19 and 20 showed that the RBI may transfer between ₹2.9 lakh crore and ₹3.2 lakh crore (around $30–33 billion) to the government. This is in line with the estimate made in the Union Budget for the current financial year.
Out of 22 economists who responded to another question in the survey, 12 said that the government is becoming too dependent on RBI surplus transfers. Such transfers have increased nearly 55 times over the past 20 years.
Why RBI Transfers Dividend to Government?
The Reserve Bank of India transfers dividend to the Government of India because the RBI is fully owned by the government. The central bank earns income through interest on government securities, foreign exchange reserves, investments, and banking operations.
After paying its operational expenses and keeping sufficient reserves for financial stability and emergencies, the remaining surplus profit is transferred to the government.
This transfer is known as the RBI dividend or surplus transfer. The money helps the government manage its finances, reduce fiscal deficit, support public expenditure, and lower borrowing requirements.
However, the RBI does not transfer all of its earnings, as a part of the profit is retained as contingency reserves under the Economic Capital Framework recommended by the Bimal Jalan committee.
Other Points of Survey
Under revised rules introduced in 2019, the RBI is required to keep a contingency reserve of 4.5% to 7.5% of its balance sheet and transfer the remaining surplus to the government. At present, the RBI maintains the reserve at 7.5%.
According to the survey, the expected transfer amount of around ₹3.05 lakh crore would account for the highest share of government revenue in more than two decades, except during the financial year 2019-20.
However, economists warned that the transfer alone may not be enough to protect the government’s finances from rising global risks. Factors such as higher crude oil prices, weakness in the rupee, slower revenue growth, and the possibility of higher government spending could put pressure on the fiscal situation.
According to the survey, the fiscal deficit for the current year is expected to be around 4.7% of GDP. Some economists believe it could even rise to 5%, higher than last year’s 4.4% and above the government’s target of 4.3%.
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