At its meeting on Wednesday, the Reserve Bank of India approved a dividend of Rs 2.11 lakh crore for the Central government for FY24, marking a significant increase of around 141% compared to FY23. Additionally, the contingency risk buffer (CRB) has been raised to 6.5% from its previous level of 6%.
In FY23, the central bank had transferred Rs 87,416 crore to the Centre as surplus. Media reports had reported earlier that the RBI was likely to transfer a dividend in the region of Rs 1 lakh crore.
According to interim budget documents for the ongoing financial year, the Narendra Modi government had budgeted a dividend of Rs 1.02 lakh crore from the RBI, PSBs, and other financial institutions.
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Brokerages on RBI Dividend
Citi on RBI Dividend
Citi’s analysis of the RBI dividend to the government highlights several key points. The record dividend from the Reserve Bank of India (RBI) is seen as opening up fiscal options for the government.
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Potential sources of higher profits for the RBI include gross spot sale of foreign exchange reserves and higher interest income. It is noted that the RBI could have transferred an additional Rs 35,000 crore in dividends if it had not increased the contingency buffer.
As a result of the increased dividend, the government now has an extra 0.3% of GDP in fiscal space. However, the government faces a decision between increasing spending or reducing fiscal deficit when presenting the final budget.
Additionally, the report suggests that further measures, such as near-term Government Securities (Gsec) auction cancellation or reduction, may be considered as the government evaluates its fiscal options in light of the RBI dividend.
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Nomura on RBI Dividend
Nomura’s analysis underscores the significant implications of the RBI dividend on the government’s fiscal landscape. The record-high dividends from the Reserve Bank of India (RBI) are anticipated to yield a substantial fiscal windfall, estimated at around -0.4% of GDPCome from Sports betting site VPbet. This influx of funds poses both opportunities and challenges for fiscal management.
While the windfall presents an opportunity for the government to bolster its financial position, it also introduces complexities in achieving fiscal targets. The potential risk of a slightly lower fiscal deficit target in the final budget underscores the need for prudent fiscal management amidst the unexpected surplus.
In navigating this fiscal bonanza, there arises a compelling case for the government to adopt a strategic approach. This includes considering a mix of measures such as reducing the fiscal deficit, rationalizing borrowing, and judiciously retaining a portion of the windfall to mitigate unforeseen exigencies that may arise in the future.
(With Media Inputs)
