The Reserve Bank of India (RBI) sanctioned a dividend of almost Rs 2.11 lakh crore for the central government for the fiscal year 2024, showing an almost 140% surge from the previous fiscal year.
In FY23, the RBI had allocated Rs 87,416 crore to the Centre as surplus.
At the 608th Meeting of the Central Board convened in Mumbai, the board deliberated on the global and domestic economic situations, encompassing potential risks to the outlook. The board ultimately resolved to allocate a surplus of Rs 2,10,874 crore.
The RBI stated, “During the accounting years 2018-19 to 2021-22, due to the prevailing macroeconomic conditions and the impact of the Covid-19 pandemic, the Board had opted to maintain the CRB at 5.50 per cent of the Reserve Bank’s Balance Sheet size to bolster growth and overall economic activity.”
Nonetheless, with the resurgence of economic growth in FY23, the Contingency Risk Buffer (CRB) was elevated to 6%. For FY24, it was further increased to 6.5%, reflecting the sustained strength and resilience of the economy.
“As the economy continues to exhibit strength and resilience, the Board has chosen to raise the CRB to 6.50 per cent for FY 2023-24. Subsequently, the Board sanctioned the transfer of Rs 2,10,874 crore as surplus to the Central Government for the accounting year 2023-24,” RBI announced.
Earlier reports indicated that the Reserve Bank of India (RBI) would authorize a dividend exceeding Rs 1 lakh crore for the government in FY24.
However, the approved amount is considerably higher than what experts had predicted. This surplus transfer will not only strengthen the government’s finances but also aid in achieving its budget deficit target.
According to Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, the substantial dividend can be attributed to higher interest rates on both domestic and foreign securities, a significant increase in gross sale of foreign exchange, and minimal impact from liquidity operations compared to the previous year.
Furthermore, Bhardwaj mentioned that this dividend is accompanied by the contingency risk buffer being maintained at the higher end of the statutory requirement. It is anticipated that this unexpected windfall will help reduce the fiscal deficit by 0.4% in FY25. Additionally, the upcoming Budget may announce lower borrowing, which will provide significant relief to the bond markets.