Former Finance Secretary Subhash Chandra Garg has said that the reason for the Reserve Bank of India (RBI) paying a record dividend of Rs 2.11 lakh crore to the government is probably due to higher profits. However, its impact on the economy depends on the extent to which the government uses it to reduce borrowing or increase expenditure. It is noteworthy that the RBI’s Central Board of Directors in its 608th meeting last week approved a dividend payment of Rs 2.11 lakh crore to the central government for the financial year 2023-24. This will be the highest dividend payment ever by the central bank. This is more than double the budget estimate for the current financial year.
In the interim budget, the government had estimated a total dividend income of Rs 1.02 lakh crore from the RBI and public sector financial institutions. The central bank had paid a dividend of Rs 87,416 crore to the government for the financial year 2022-23. Garg told PTI-Bhasha, “The most obvious reason for the high dividend of RBI can be huge profits. Although the ‘balance sheet’ of RBI has not been published yet, it is estimated to be around Rs three lakh crore.”
Das wants to leave a good legacy behind
He said, “Also, this is Shaktikanta Das’s last year as RBI Governor and elections are also being held in the country. In such a situation, he may be interested in leaving a memorable legacy and keeping the new government ‘happy’ by giving a record dividend.” Das’ term ends in December this year. The government appointed Das as the 25th Governor of RBI on December 11, 2018, initially for a period of three years. He was given an extension for three years in 2021. When asked about the impact of the record dividend on the economy, Garg said, “If seen on the basis of budget estimates, the dividend of RBI is about Rs 1.25 lakh crore more. This is about two percent of the government’s budget of Rs 45 lakh crore. So it is not a very big amount. The impact on the economy depends on the extent to which the government uses it to reduce borrowing or increase expenditure. It will be known only after the regular budget is presented in July.
Fiscal deficit in the country is more than 6% in 5 years
He said, “The fiscal deficit in the country has been more than six percent in the last five years. It is estimated to be 5.1 percent in the financial year 2024-25. If the government uses it to reduce the fiscal deficit, it will come down to around 4.8 percent, all other things being the same. ” In response to another question, Garg said, “The surplus amount with the RBI is mainly contributed by two major parts these days. First, operating income from interest on rupee-denominated securities and foreign currency assets and second, conversion of accumulated profit on foreign assets into cash profit. I am personally not in favor of increasing dividends based on profit at the valuation level. However, the surplus related to operating income should be transferred to the government. “
High dividend will not have a direct impact on inflation
He also said, “I do not think high dividend has any direct impact on inflation, real interest rate or economic growth.” It is noteworthy that economist and former professor of Indian Statistical Institute Abhirup Sarkar has warned that putting cash in the market can increase inflation and lead to a fall in real interest rates, which can adversely affect retirees and individuals dependent on interest income. He also expressed concern that dividends may limit RBI’s ability to save banks in future, as the central bank will not have enough money to take immediate action. Regarding this, Garg said, “The dividend given by RBI or if it keeps it with itself, it does not affect its ability to fulfill its responsibility. The central bank uses other measures to deal with the crisis of banks. “
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