The Reserve Bank Of India (RBI) on Monday (February 19) announced an interim dividend payout of Rs 28,000 crore for the Union government. The RBI is mandated to transfer its surplus profits to the government under provisions of Section 47 of the Reserve Bank of India Act, 1934.
This is the second straight year that the RBI has announced an advance payment to the government. Last year, it made a payment of Rs 10,000 crore as an interim dividend in March and a final dividend of another Rs 40,000 crore in August.
The central bank made this announcement through a statement it released after the meeting of the Central Board of the Reserve Bank of India concluded in New Delhi.
“The Board reviewed the current economic situation, global and domestic challenges and other specific areas of operations of the Reserve Bank. Based on a limited audit review and after applying the extant economic capital framework, the Board decided to transfer an interim surplus of ₹ 280 billion to the central government for the half-year ended December 31, 2018. This is the second successive year that the Reserve Bank will be transfering an interim surplus.”
Shaktikanta Das, the RBI Governor chaired the meeting of the Central Board. The directors of the Central Board of the Reserve Bank including Bharat Doshi, Sudhir Mankad, Manish Sabharwal, Dr. Prasanna Kumar Mohanty, Dilip S. Shanghvi, Satish Marathe, S. Gurumurthy, Ms Revathy Iyer and Professor Sachin Chaturvedi, also attended the meeting. The Government of India was represented by Subhash Chandra Garg, Secretary, Department of Economic Affairs and Rajiv Kumar, Secretary, Department of Financial Services .
The interim dividend is likely to help Narendra Modi-led government to partially reduce the fiscal deficit. Fiscal deficit for 2018-19 is expected to be slightly higher, at 3.4 per cent of the GDP instead of the 3.3 per cent Jaitley had budgeted whilw presenting the previous budget on 1 February 2018.
Given that Centre’s revenue from GST has come below budgeted estimates , it is hoping to cap the deficit with non-tax revenue such as disinvestments and surplus from the RBI.
While the Union government adheres to the April-March accounting cycle, the RBI follows a July-June one. RBI usually declares final dividend in August, but has been declaring an interim dividend since the last two years.
The dividend amount has been a constant source of friction between the central bank and the government, with the latter demanding that the RBI part with a greater share of its capital.
The Finance Ministry has long held that RBI has accumulated enormous reserves from seigniorage (profits from printing money and minting coins) far in excess of any reasonable limits.
Last November, in response to request by the government, the board of directors of the Reserve Bank of India (RBI) met and agreed to constitute an expert committee to determine the appropriate level of economic capital that the central bank must hold.