
Recent actions by the Reserve Bank of India (RBI) suggest that it may transfer a higher dividend to the government than last year, potentially in the region of ₹1 lakh crore. This could provide a significant boost to the government’s finances.
Last week, the RBI announced a steep cut in the government’s borrowing through Treasury Bills, reducing the amount of funds that the government would have garnered through these short-term instruments by ₹60,000 crore. Additionally, the central bank took measures to ensure the success of an upcoming operation where the government plans to prematurely pay back ₹60,000 crore of earlier borrowings.
These actions indicate an effort to utilize government funds that are currently sitting idle due to election-related constraints on spending. They also hint at an imminent improvement in the government’s financial situation.
Potential Surplus Transfer and Earnings from Foreign Assets
Analysts have performed calculations based on publicly available information about the RBI’s balance sheet, suggesting that the central bank may exceed the surplus transfer of ₹87,416 crore given to the government last year. The calculations indicate a surplus (before provisions) of ₹3.4 trillion, which, after accounting for provisions, leaves a dividend of ₹1.2 trillion.
One of the key factors contributing to a potentially large surplus transfer is the sharp increase in interest that the RBI would have earned through its foreign exchange assets, particularly amid aggressive rate increases by the US Federal Reserve over the last couple of years.
While the RBI’s gross sales and purchases of US dollars were lower in the previous fiscal year compared to the year before, analysts still expect a significant boost to the central bank’s earnings from foreign assets.
Conclusion
In conclusion, recent actions by the RBI suggest that it may transfer a higher dividend, potentially around ₹1 lakh crore, to the government than last year. This could provide a significant boost to the government’s finances. Analysts’ calculations based on the RBI’s balance sheet indicate the possibility of a larger surplus transfer compared to the previous year. Earnings from foreign assets, particularly from interest on foreign exchange assets, are expected to contribute to the potential surplus transfer. The RBI is likely to announce the transfer of its surplus funds to the government in late May.