The Central Board of Directors of the Reserve Bank of India (RBI) yesterday agreed to pay a dividend of Rs 50,000 crore to the government for the year ended June 30. This is the highest ever surplus transferred since 2015-16, providing a handy cushion to the government to manage its fiscal position - especially in the run up to general elections next year.
As per the Reserve Bank of India Act, "After making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation funds and for all other matters for which provision is to be made by or under this Act or which are usually provided for by bankers, the balance of the profits shall be paid to the Central Government."
How does the RBI generate surplus profits? It's primarily interest income that it earns from lending to commercial banks, from domestic and foreign government bonds that it holds, as well as from the purchase and sale of government securities.
The RBI, which follows the July-June financial year, has paid about 63 per cent higher dividend this time round than in the previous year - the dividend payout in 2016-17 was Rs 30,659 crore for the fiscal ended June 2017. The dividend was low last year on account of additional expenses incurred on printing of new currency notes following demonetisation in November 2016.
In Budget 2018, the government had projected to collect Rs 54,817.25 crore as dividend income from the RBI, the state-owned banks and financial institutions. So the latest RBI payout is over 91% of the estimated target. Furthermore, earlier in March, the RBI paid interim dividend of Rs 10,000 crore at the insistence of the government to help it stick to its fiscal roadmap.
"The sizeable transfer of surplus from the RBI to the government will ease fears regarding potential shortfalls in the budgeted amount of dividends and surplus. Nevertheless, the dividends to be transferred by financial and non-financial corporates entities will remain the key," Aditi Nayar, principal economist, Icra, told The Business Standard.
In any case the dividend is a welcome break for the government at a time when it is struggling to meet its disinvestment target of Rs 80,000 crore for the current fiscal after the failed attempt to privatise Air India.
With PTI inputs
(Edited by Sushmita Choudhury Agarwal)