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RBI dividends to government may double, aiding fiscal gap

May 19, 2023

RBI dividends to government may double, aiding fiscal gap
The Reserve Bank of India board may decide to nearly double its dividend to the government from official estimates due to revaluation gains and profits from selling dollars, which could help bridge the fiscal deficit.

A Bloomberg survey of nine economists saw the surplus transfer at 900 billion rupees ($10.9 billion) for the year ended March, compared to the government’s own estimate of 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 set to meet on Friday as early signs of slowing growth emerge with elevated interest rates and falling global demand. A higher dividend payout will help Prime Minister Narendra Modi’s government to meet its target of lowering the fiscal deficit to 5.9% of gross domestic product in the current fiscal year from 6.4% a year ago and shore up revenues ahead of the 2024 national vote.
 
The government is expecting the RBI to transfer a significantly higher dividend, which will help reduce its market borrowing, people familiar with the matter told Bloomberg on Thursday.
 
“Gains from the near record gross foreign exchange sales in fiscal year 2022-23 would be the major driver of higher surplus,” said Madhavi Arora, economist at Emkay Global Financial Services. The dividend could bring in additional revenue of 0.2% of GDP, which could partly offset losses in bonds and cover for lower tax revenue and slower divestment, she said.
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