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  Opinion   Edit  25 May 2024  AA Edit | RBI’s booster shot to economy

AA Edit | RBI’s booster shot to economy

THE ASIAN AGE.
Published : May 25, 2024, 12:34 am IST
Updated : May 25, 2024, 12:34 am IST

Record Rs 2.1 Lakh Crore transfer fuels fiscal optimism amid market surge

 The Reserve bank of India. (PTI File Image)
  The Reserve bank of India. (PTI File Image)

The Reserve Bank of India (RBI) transferred a whopping amount of Rs 2.1 lakh crores to the Central government as a dividend payout, giving a booster shot to volatile stock markets. The current payout is 141 per cent higher than the ₹87,416 crores that the RBI had given the Central government last year and is Rs 1.1 lakh crores more than the amount the Central government expected to receive from the RBI this year.

The RBI earns money from its operations in financial markets, when it intervenes to buy or sell foreign exchange. It also earns income from government securities it holds and as returns from its foreign currency assets, commission from state and Central governments for handling their borrowings, among other avenues. After providing for its statutory reserves and other contingencies, RBI transfers surplus money every year to the government in the form of dividend.

The current year’s higher dividend is expected to allow the Central government to meet its fiscal deficit target of 5.1 per cent that was envisaged in the interim budget of 2024. It will also give an elbow room to the next finance minister when he or she presents the full-fledged budget in July. The higher dividend from the RBI will offset any dip in the government’s expected revenue from disinvestment. 

The news of the RBI bonanza set off celebrations on Dalal Street, boosting the Sensex and the Nifty to lifetime highs. A lower fiscal deficit means lower government borrowing, which makes bank credit available for the corporate world and the general public. This translates into greater consumption levels, setting off a virtuous cycle in the economy.

As the higher payout was made after increasing its contingency risk buffer by 50 basis points (more than Rs 30,000 crores) from six per cent to 6.5 per cent of its balance-sheet, it remains to be seen how the RBI’s surplus income has gone up so much and if a dividend of this magnitude is a one-off or can be seen as a regular annual contribution.

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