RBI’s FY25 Dividend to the Government Likely to Be 50% Higher Than FY24?

The Reserve Bank of India (RBI) is set to make a significant surplus transfer to the Indian government for the fiscal year 2025 (FY25), which could reach as high as ₹3 lakh crore, as per Economic Times report citing reports by economists.

This figure exceeds initial projections and could be 50% higher than the ₹2.1 lakh crore payout made in FY24. This substantial payout is set to provide a significant boost to government finances and offer fiscal space at a time when the economy faces multiple challenges.

The Boosted Dividend Estimate

Initially, economists had estimated RBI’s dividend transfer for FY25 to be between ₹2 lakh crore and ₹2.5 lakh crore. However, recent reports indicate that the payout could now touch ₹3 lakh crore, thanks to stronger-than-expected performance across multiple areas.

This increase in dividend estimates is driven by a combination of factors such as robust foreign exchange gains, elevated interest income, and the RBI’s recent actions to support the rupee.

One of the key drivers behind this surge in dividend is the RBI’s higher-than-expected gross dollar sales and the robust performance of its forex operations. In FY25, gross dollar sales rose to $371.6 billion, compared to just $153 billion in FY24.

In addition, market-to-market (MTM) gains from the RBI’s holdings of rupee securities have contributed to the surplus, as declining government securities (GSec) yields have boosted the value of RBI’s securities portfolio.

Implications for Government and the Economy

The additional ₹0.9 lakh crore above initial estimates is not just a boost to the government’s finances it also plays a key role in bridging the fiscal gap. This payout could provide critical support for the government’s expenditure plans while also helping to sustain economic stability.

Economists suggest that the larger dividend payout could create fiscal space equivalent to 0.1% to 0.2% of India’s GDP, which could be used to finance the government’s spending programs.

Additionally, the RBI’s payout will likely improve liquidity in the banking system, which could be visible as early as July. This, in turn, could enhance credit flow and provide further support to economic growth.

Moreover, the RBI’s significant forex income, which comes largely from its dollar sales, is also expected to cushion the Indian economy against external vulnerabilities, especially in times of global economic volatility.

Read More: RBI Adds 58 MT of Gold to Reserves in FY25, Raising Share to Near 12%.

The Economic Capital Framework (ECF) and Contingency Provisions

RBI’s dividend payout is also guided by the Economic Capital Framework (ECF) introduced in 2019. This framework, based on recommendations by a committee chaired by former RBI Governor Bimal Jalan, aims to ensure that the RBI maintains adequate provisioning to cover unforeseen risks. The ECF sets guidelines for maintaining a Contingent Risk Buffer (CRB) within a range of 6.5% to 5.5% of the RBI’s balance sheet.

For FY25, the RBI is expected to maintain contingency provisions of between ₹40,000 crore and ₹80,000 crore, similar to those of the previous fiscal year. These provisions are intended to safeguard the RBI’s balance sheet in the event of economic or financial shocks.

Conclusion

For now, it’s clear that the RBI’s FY25 dividend will play a crucial role in the fiscal landscape of India, making it a key development to watch in the coming months.

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