The Reserve Bank of India (RBI) on Monday approved a payout of Rs. 1.76 lakh crore to the government from its surplus and reserves, after an expert committee chaired by former Governor Bimal Jalan, made its recommendations to the central bank. The record transfer, including a surplus of Rs. 1.23 lakh crore for 2018-19, will boost the government’s finances at a time it strives to tackle a nearly five-year low economic growth with lakhs of estimated job cuts across sectors, and defend its ambitious target of containing fiscal deficit at 3.3 per cent of the GDP. Economists say the payout will likely help the government meet its tax revenue shortfall and fund higher spending.
The transfer will include Rs. 52,640 crore from its surplus capital, whereas the dividend includes Rs. 28,000 crore already transferred to the government in February this year.
The transfer of surplus and excess dividend is in line with the recommendations of the Bimal Jalan Committee, which was tasked to review the Economic Capital Framework of the RBI. The RBI payout is much larger than government estimates. In its Budget for the financial year 2019-20, the government has estimated a dividend payment of Rs. 90,000 crore from the RBI. The RBI’s move comes days after the government announced a range of measures, including an immediate injection of Rs. 70,000 crore into state-run banks, instead of spreading it over the year ending March 2020 as announced in Budget, to push growth in the sector.
The RBI pays dividends to the government every year, based on the profits from its investments and printing of notes and coins. It will release its balance sheet as part of its annual report later this week.
Over the past couple of years, the Finance Ministry has been seeking higher payouts, arguing the central bank is holding more capital than it needs.
The transferred amount is three times the government average and had been the cause of a constant rift between the government and the RBI. The previous governors Raghuram Rajan and Urjit Patel had warned against the transfer of excess reserves saying that it would hit RBI’s ratings and increase borrowing costs. The incumbent governor Shaktikanta Das, however, believes that the transfer will not hit the bank’s reserves.