The RBI pays the government a dividend each year to help it meet its financial targets
The Reserve Bank of India (RBI) on Friday approved an annual dividend payout of more than Rs 57,000 crore to the government. The development comes at a time when the government’s fiscal deficit hit a record Rs 6.62 lakh crore in the April-June period as the coronavirus pandemic-triggered lockdown affected government’s revenue collections. Fiscal deficit – an indication of the total borrowings required by a government – occurs when revenue collections fall short of expenditure.
Here are 10 things to know:
The RBI’s board approved the transfer of Rs 57,128 crore as surplus to the central government for for accounting year 2019-20 (July-June), having reviewed the current economic situation, continued global and domestic challenges, and the monetary, regulatory and other measures to mitigate the economic impact of COVID-19. The central bank considers the period from July to June as accounting year.
According to the Union Budget for 2020-21, the dividend from the central bank and other state-run financial institutions is pegged at Rs 60,000 crore.
The RBI’s central board decided to maintain the Contingency Risk Buffer at 5.5 per cent, after concluding its 584th meeting today, under the chairmanship of Governor Shaktikanta Das, .
In recent years the government has been putting pressure on the central bank to increase its payouts.
Last year, the RBI’s board had made a record payout of Rs 1.76 lakh crore to the government, including a dividend of Rs 1.23 lakh crore and surplus capital of Rs 52,640 crore.
As the manager of government finances, the central bank pays the government a dividend each year to help it meet its financial targets. The receipt from various sources – including dividend from the central bank – helps government meet its fiscal deficit target.
The government has estimated fiscal deficit at 3.8 per cent of the country’s gross domestic product (GDP) in the year ending March 2021, as against 3.3 per cent for financial year 2019-20.
The fiscal deficit is expected to widen due to COVID-19-affected tax collections and the front-loading of spending by the government, according to economists.
Meanwhile, the country is headed towards its first full-year economic contraction in more than four decades.
Its GDP is forecast to shrink 5.1 per cent in the current fiscal year, and 9.1 per cent under a worst-case scenario, according to analysts in a poll by news agency Reuters. If that happens, it would mark the country’s worst economic performance since 1979.