RBI's record dividend of Rs 2.11 lakh crore will be a booster for new govt. to check fiscal deficit

RBI dividend to government: The fiscal deficit of the government to reduce by 30-40 basis points from the budgeted level of 5.1 per cent of GDP, highlights a report by SBI.

The report states that following the Reserve Bank of India's (RBI) announcement of a record dividend of Rs 2.11 lakh crore to the central government for the financial year 2023-24, a substantial reduction in the fiscal deficit is on the horizon.

"The declaration of a record dividend by the RBI today was well received by the financial markets, the benchmark yields softening to sub-7% in testimony to the highest ever surplus transfer that is estimated to ease fiscal deficit by 30 to 40 bps from the budgeted level of 5.1% of GDP for FY25 as was set in Interim Budget," said the report.

The chairman of Mahindra Group, Anand Mahindra also attended the RBI meeting to approve the dividends and he informed in a social media post that the dividend transfer to the government has been approved after increasing the contingency risk buffer to 6.5 per cent from 6 per cent.

"I was very pleased to attend the @RBI board meeting earlier today and join with other directors to approve this record dividend. It's important to note that this record amount was declared AFTER increasing the contingency risk buffer to 6.5 per cent from 6 per cent. I would like to compliment @DasShaktikanta & the entire team at the RBI for their diligent & judicious management of this vital institution" said Anand Mahindra, Chairman, Mahindra Group in a social media post.

With the surplus amount expected to mitigate the fiscal deficit, India's economic landscape stands to benefit from improved fiscal sustainability and prudent financial management.

The report highlights that the sharp jump in the surplus amount could be attributed to higher income of RBI from the forex holding, among other factors. The dynamics of surplus for RBI was decided by its LAF (Liquidity Adjustment Facility) operations and interest income from its holding of domestic and foreign securities.

On the asset sides the provisional RBI balance sheet components show that the RBI domestic assets increased marginally while its foreign assets grew sharply. With higher domestic interest rates and foreign interest rates and possible contracting payable under LAF, RBI surplus swelled in FY24. The increase in the price of gold also added to the overall expansion in RBI balance sheet.

The RBI's income was Rs 1.6 lakh crore in FY22 and Rs 2.35 lakh crore in FY23. The SBI report projects that for FY24 the RBI income will be around Rs 3.75 to 4 lakh crore.

The report says that a nearly 60-70 per cent YoY increase in RBI's income is expected to be from Interest Income from foreign securities as well as exchange gain from foreign exchange transactions.

The RBI said that the surplus transfer to the government for the financial year 2023-24 is based on the Economic Capital Framework (ECF) adopted by the RBI on August 26, 2019, as per recommendations of the Bimal Jalan committee.