Filling The Fiscal Void: RBI Eyes Doubling Dividends To Centre Due To Gains, Dollar Profits

The Reserve Bank of India (RBI) board is considering nearly doubling its dividend to the government.

The increased dividend is attributed to revaluation gains and profits from selling dollars. This move could aid in bridging the fiscal deficit.

A Bloomberg survey of nine economists predicts a surplus transfer of 900 billion rupees ($10.9 billion) for the year ended March. The government's estimate is 480 billion rupees, which includes dividends from state-controlled banks.

Last year, the RBI approved a payout of 303.1 billion rupees, the lowest in a decade.

The RBI board is meeting on Friday to address signs of slowing growth, including elevated interest rates and falling global demand.

Increasing the dividend payout will support Prime Minister Narendra Modi's government in its goal of reducing the fiscal deficit to 5.9 per cent of GDP in the current fiscal year. This is a decline from the 6.4 per cent recorded last year.

As per the report, people familiar with the matter informed Bloomberg that the government expects a significantly higher dividend transfer, which will reduce its market borrowing.

The RBI provides the government with an annual payout derived from surplus income.

The surplus income comes from investments and valuation changes on foreign exchange holdings, including the dollar. and the RBI also earns fees from printing currency notes, contributing to the payout.

The RBI is required to maintain a contingency risk buffer within the range of 5.5 per cent to 6.5 per cent of its balance sheet.