Explained: RBI declares mega Rs 2.11 lakh crore dividend to government

The Reserve Bank of India (RBI) on Wednesday declared its highest-ever dividend payout, amounting to Rs 2.11 lakh crore, to the central government for the fiscal year 2023-24. This decision is expected to greatly improve the Centre's management of the fiscal deficit, or the shortfall between a government's revenue and expenditure. This allocation was significantly higher than the previous high of Rs 1.76 lakh crore, in 2018-19. The decision was made at the 608th meeting of the RBI's Central Board of Directors, chaired by Governor Shaktikanta Das. 

RBI dividend history chart 

What led to the significant increase in the RBI's dividend payout? 

According to foreign brokerage Citi, the government has 0.3 per cent extra gross domestic product (GDP) fiscal space. It would have to decide between increasing spending or reducing the fiscal deficit while presenting the final budget.

A fiscal deficit is the difference between the government's income and its spending.  

According to Zee Business Research, the increase in the RBI's forex reserves to $644.15 billion and gains from forex trading are some of the reasons for the increase in the dividend. 

Further, higher interest received on domestic as well as foreign securities also gave an edge to RBI along with strengthening RBI's balance sheet as gold prices rose.

RBI income chart 

Here 60 to 70 per cent of gains came from interest income from foreign securities foreign exchange transactions.

What impact will the increased dividend have? 

According to Zee Business research, the government may have to borrow less from the market thanks to the RBI's huge dividend. The estimated reduction in fiscal deficit will be to the tune of 30-40 basis points (bps). 

According to Citi, the RBI could have transferred Rs 35,000 crore more in dividends if it had not increased its contingency buffer, which is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies.

The fiscal bonanza suggests that there is a case for the government to do a mix of lowering its fiscal deficit, and cutting borrowing while retaining some of the windfall to meet any exigencies, added Nomura.  

With inputs from agencies 

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