RBI's record dividend sparks mixed reactions among economists

The Reserve Bank of India (RBI) announced its highest-ever dividend payout of Rs 2.11 lakh crore. While some lauded it as a testament to the nation's economic robustness, others voiced apprehensions about its potential ramifications.

Noted economist Suman Mukherjee welcomed the announcement, interpreting it as a reflection of India's fiscal strength. He attributed this windfall to various factors, including a surge in foreign exchange reserves, increased lending to commercial banks, and the government's proactive crisis management strategies. Mukherjee emphasized the positive impact of this development on the stock market, which soared to record highs in response.

Contrary to Mukherjee's optimism, economist Abhirup Sarkar expressed reservations about the RBI's dividend declaration. Sarkar raised concerns about the underlying motives, suggesting that deficit reduction might have been a driving factor. He questioned whether the dividend payout could have been sourced from the RBI's reserves rather than its income, potentially jeopardizing the central bank's financial stability.

Moreover, Sarkar warned of inflationary risks and a potential decline in real interest rates, particularly affecting retirees and individuals reliant on interest income. He cautioned that injecting liquidity into the market could lead to adverse effects, undermining the RBI's ability to manage monetary policy effectively.

Highlighting the importance of preserving the RBI's financial strength and independence, Sarkar stressed the need for maintaining sufficient reserves for emergency situations, such as intervening to support troubled banks. He expressed concerns that the record dividend might limit the RBI's capacity to undertake crucial interventions in the future, potentially compromising financial stability.

Furthermore, Sarkar criticized what he perceived as encroachment on the RBI's autonomy by the government. He urged for measures to safeguard the independence and efficacy of the central bank in maintaining stability within the financial system.

The RBI's historic dividend payout has ignited a debate among economists, underscoring the complexities of balancing fiscal prudence with ensuring the resilience of the financial sector in India.