Govt Expects Windfall From RBI

While the fiscal year has just begun, any windfall surplus will be welcomed by the government as it bids to meet the fiscal deficit target of 5.9 per cent of GDP, amidst lack of clarity on exactly to what extent will recession in the West impact India's trade and tax collections.

The Centre expects a windfall surplus transferable from the Reserve Bank of India for the current fiscal year (2023-2024, or FY24), Business Standard has learnt.

Sources said any dividend from the RBI, likely to be transferred this month itself, to be comfortably above the FY24 Budget Estimates (BE) for dividends from the RBI, State-owned banks, and financial institutions combined, of Rs 48,000 crore (Rs 480 billion).

"We are very comfortable with what we expect the RBI to announce as surplus. It will be well above BE," said a senior government official, but declined to hazard a guess as to what that amount could be.

The main reason why the Centre and analysts expect a bumper dividend windfall is that the RBI is said to have raked in a massive net income gain from foreign exchange currency sales as a buffer for the rupee during tumultuous geopolitical upheavals last year owing to Russia's invasion of Ukraine.

'We project the RBI's annual dividend to overshoot BE by around 0.15-0.2 per cent of gross domestic product, jumping to Rs 80,000-Rs 95,000 crore (Rs 800 billion to Rs 950 billion),' says Madhavi Arora, lead economist, Emkay Global.

'This huge surplus will be largely helped by net profit emerging from massive foreign exchange transactions as well as the somewhat higher interest income on treasury/sovereign holdings abroad and back home,' she adds.

Arora pegged the government's budgeted expectation just from the RBI dividend at Rs 38,000 crore-Rs 40,000 crore (Rs 380 billion to Rs 400 billion)n for FY24, which is set to be easily crossed now.

Arora, in her research report, said that the RBI carried out gross dollar sales of $206.4 billion for April-February 2022-2023 (FY23), against $96.7 billion for the same period in 2021-2022 (FY22).

'This huge gross dollar sale was more active during June-December FY23 with the dollar/rupee rate averaging close to 80.6. Assuming a weighted average historical dollar acquisition cost of Rs 64/65, these forex transactions would yield considerable gains in the income statement,' she said.

<p">Arora, however, warned that a part of the income gain will be countered by nearly-same provisioning needs amid mark-to-market losses on foreign assets in the contingency fund.

This is not the first time the RBI has paid a windfall surplus to the Centre.

As the RBI shifted from a July-June financial year to an April-March financial year in 2021, it transferred Rs 99,122 crore (Rs 991.22 billion).

That amount itself was Rs 45,611 crore (Rs 456.11 bilion) higher than the BE for revenue from dividends by the RBI and public sector banks of Rs 53,510.6 crore (Rs 535.10 billion) for FY22.

But the highest surplus that the RBI has ever paid to the government was for 2019-2020 -- a record Rs 1.23 trillion, following the recommendations of the Bimal Jalan Committee on the Economic Capital Framework.

In addition, the RBI had also transferred Rs 52,637 crore (Rs 526.37 billion) of excess provisions that very year.

The Jalan panel had recommended that the RBI, at all times, should keep its 'realised equity' at 5.5-6.5 per cent of the balance sheet, and the rest can be transferred to the central government.

While the fiscal year has just begun, any windfall surplus will be welcomed by the government as it bids to meet the fiscal deficit target of 5.9 per cent of GDP, amidst lack of clarity on exactly to what extent will recession in the West impact India's trade and tax collections.

Feature Presentation: Ashish Narsale/Rediff.com