The Reserve Bank of India (RBI) will transfer Rs 57,128 crore of its surplus to the Union government for the fiscal 2019-20, against Rs 1.76 trillion it did last year, the central bank said in a statement.
The government had budgeted for Rs 60,000 crore to bridge its fiscal deficit, but government officials had expected more. The surplus is commonly called “dividend”. The government’s finances are stretched owing to the pandemic and economic slowdown.
The recently released data showed the Centre’s fiscal deficit for the thirst three months of 2020-21 stood at Rs 6.62 trillion, which is 83 per cent of the budgeted target for the year. A higher payout from the RBI would have helped, and the transfer is lower than even the amount budgeted for.
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“This shortfall pales in comparison with the Covid-induced revenue shock from tax and non-tax revenues and disinvestment proceeds, which we assess at over Rs 6 trillion relative to the Government of India’s FY21 Budget Estimates,” said Aditi Nayar, principal economist, ICRA.
Economists, however, had expected the transfer to be relatively muted this year and it is largely in line with their expectations.
“The RBI was a net buyer of foreign currency this time and not a net seller. When the RBI sells dollars accumulated at historic prices, say, at Rs 45 a dollar, it earns a good profit. But this year, it built up its reserves instead and that could have hit profitability to a large extent,” said Indranil Pan, chief economist, IDFC FIRST Bank.
The RBI’s foreign exchange reserves stood at $538 billion on August 7, more than $100 billion addition in a year. Foreign exchange reserves were $429 billion a year ago.
“In a year when the RBI has a larger LAF (liquidity adjustment facility) programme, there would be a tendency for more money to be earned by the central bank. Conversely in FY21, for instance, where the RBI has been more active with the reverse repo, net earnings could be lower as payouts would be more than receipts from repo such as targeted long-term repo operations (TLTRO),” said Madan Sabnavis, chief economist of CARE Ratings.
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While the details will be available with the release of the Annual Report later this month, it is unlikely there would be any provision for more transfer because the central bank is aligning its financial year with that of the government and that limits the opportunity for that.
According to the economic capital framework (ECF) adopted by the RBI board last year, the contingency risk buffer, or realised equity, has to be maintained at 5.5-6.5 per cent of the balance sheet.
The RBI board decided to maintain the buffer at 5.5 per cent.
“It does look like that the RBI may be a steady though not hyper-active provider of funds to the government. The only way out would be if there is direct lending to the government by which the latter pays interest to the central bank and it comes back as surplus transfer,” Sabnavis said.
In 2018-19 (July to June), Rs 1,23,414 crore of its surplus was transferred to the central government, and then an additional Rs 52,637 crore of excess provision as recommended by the Bimal Jalan committee on the ECF.
RBI’s financial year runs from July to June, but from next year, the financial year will get aligned with that of the government and will end in March. The central bank’s board met on Friday to review the RBI’s balance sheet, and the surplus transfer is part of that review process.
