Taking advantage of the RBI’s different accounting year, the Centre had started demanding an interim dividend till the time the latter’s final balance sheet is prepared (usually in August).
To address this anomaly, an expert committee led by former RBI governor Bimal Jalan had recommended aligning the RBI’s financial year with that of the government.
The Reserve Bank of India will align its financial accounting year with that of the central government with effect from 2020-21 -- a move that may put an end to the practice of the exchequer getting interim dividend from the central bank. The decision was taken at a meeting of the RBI’s central board held in the national capital on Saturday.
“The board recommended aligning the financial year of the RBI, currently July-June, with the government’s fiscal year (April-March) from the year 2020-21 and approved forwarding a proposal to the government for its consideration,” a statement from the RBI said.
With this move, the central bank will do away with nearly eight decades of practice. The RBI, which was established in April 1935, used to follow January-December as its accounting year before it was changed to July-June in March 1940.
Taking advantage of the RBI’s different accounting year, the Centre had started demanding an interim dividend till the time the latter’s final balance sheet is prepared (usually in August).
To address this anomaly, an expert committee led by former RBI governor Bimal Jalan had recommended aligning the RBI’s financial year with that of the government.
An RBI executive explained that for 2020-21, the central bank would prepare a truncated balance sheet for a period of nine months (from July 2020 to March 2021). Following next year, the full fiscal year of the RBI will start from April 1, 2021.
The Jalan committee in its report had said the alignment of the fiscal years of the RBI and the government would ensure that the central bank was “able to provide better estimates of the projected surplus transfers to the government for the financial year for budgeting purposes”.
The committee had noted that the need for interim dividend to be paid by the RBI would be reduced and would be restricted to “extraordinary circumstances”, and the move brought “greater cohesiveness in the monetary policy projections and reports published by the RBI, which mostly use the fiscal year as the base”.
The governor didn’t rule out an interim dividend to the central government this fiscal year. “If any decision is taken, it will be uploaded on the RBI website as part of our (central board meeting) minutes. There are a lot of speculations on the interim dividend. As and when it comes up for discussion, you will come to know,” RBI Governor Shaktikanta Das said.
According to sources, a proposal to give the central government an interim dividend of Rs 37,000 crore for 2019-20 is on the table and a decision may be taken in the next board meeting. This is the third consecutive year when the government has demanded an interim dividend. In FY19, the RBI paid an interim dividend of Rs 28,000 crore to the Union government.
Credit uptick
The RBI governor said on Saturday that credit flow in the economy was gaining momentum and was expected to pick up in the coming months.
Das elaborated that the credit flow of banks to the commercial sector stood at Rs 2.7 trillion from October 2019-January 2020, compared to a negative change of Rs 1.3 trillion in April-September 2019.
“The momentum is gathering pace. It has really picked up from October onwards, and now the flow of credit from all sources -- banks, domestic markets and external commercial borrowings -- has improved to about Rs 7.5 trillion and there is a flow of around Rs 6 trillion between October and January. The momentum is gathering pace and credit flow is reviving,” Das said.
The governor and Finance Minister Nirmala Sitharaman briefed the media on Saturday after the customary post-budget central board meeting of the RBI.
‘No inflationary impact of Budget’
Das said the Union Budget did not have any inflationary impact. “I don’t see any impact of the Budget on inflation in March. In the sense that the direct inflationary impact is the fiscal deficit number when the borrowings go up, but the government has adhered to the principle of fiscal prudence,” the governor added.
He said the “good part” was that the central government’s borrowings were coming from small saving schemes and a declining crude oil prices would also help in containing inflation. The governor pointed out that a review of the monetary policy framework was internally being worked out and if required, the central government would be consulted soon.
He didn’t give an elaborate comment on the Supreme Court’s order rejecting the pleas of telecom companies Bharti Airtel and Vodafone Idea, which had sought a staggered option for paying dues linked to adjusted gross revenue (AGR).
“I don’t want to comment on an order of the SC and its implications this way or that way. It will be internally deliberated, if there is any issue arising out of it,” Das said.
