India’s central bank to pay $25bn dividend to government

Reserve Bank of India (RBI), the country’s central bank, says it will pay a $25 billion (2.1 trillion rupees) dividend to the government.

According to a Bloomberg report on May 22, the central bank said the transfer was approved by the bank’s board in a meeting in Mumbai.

“The bank’s board reviewed the global and domestic economic scenario, including risks to the outlook,” the apex bank said.

“The RBI board also decided to raise the contingency risk buffer (CRB) to 6.5% from 6% previously as the economy remains robust and resilient.

“The board thereafter approved the transfer of ₹2,10,874 crore as surplus to the central government for the accounting year 2023-24.”

Interim budget estimates for the fiscal year (FY) 2024/25 show that the government had budgeted a dividend of 1.02 trillion rupees from the RBI, state-run banks and other financial institutions.

For the full year (FY) 2023, the RBI transferred 874.2 billion rupees to the government.

The higher dividend payout, according to reports, will lift government revenues and help narrow the fiscal deficit of 5.1 percent of gross domestic product (GDP) in the current financial year that ends in April 2025.

It also gives a boost to the new administration that takes office after nationwide elections in June, according to reports, allowing it to increase spending and spur economic growth.

Speaking with journalists in New Delhi, T.V. Somanathan, India’s finance secretary, said the RBI dividend will be “definitely 0.2 to 0.3 percent of GDP higher than what we expected as receipts”.

“It is good news, it is always good when revenues go up,” he said.

Upasna Bhardwaj, chief economist of Kotak Mahindra Bank, said the windfall may help the government lower the fiscal deficit by 0.4 percentage points to 4.7 percent of the GDP in the current fiscal year assuming expenditure is constant.

Gaurav Kapur, chief economist of IndusInd Bank Limited, said It is positive for fiscal balances.

“This is the second consecutive year where the dividend has exceeded the budget estimate. This is helpful in pursuing the planned reduction in budget deficit,” he said.

While the exact details behind the RBI’s bigger payout will not be known until the annual report is released in a few days, analysts say higher interest income on foreign and domestic assets and gains from foreign exchange sales would have helped.