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How Did RBI Give Govt Rs 87,416 Crore?

By Arup Roychoudhury
June 01, 2023 09:33 IST
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The RBI raked in a massive net income gain from foreign exchange currency sales as a buffer for the rupee during tumultuous geopolitical upheavals last year owing to Russia's invasion of Ukraine.

IMAGE: Reserve Bank of India Governor Shaktikanta Das. Photograph: PTI Photo

The Reserve Bank of India's decision to transfer Rs 87,416 crore (Rs 874.16 billion) as surplus for the current financial year will provide a welcome fiscal boost to the Centre.

The amount, decided at the RBI's board meeting on Friday, May 19, 2023, which will be counted as part of the Centre's non-tax revenue for FY24, is 82 per cent more than the combined target for surplus from the RBI and State-owned banks and financial institutions of Rs 48,000 crore (Rs 480 billion).

Provided all other Budget assumptions, including tax revenues, expenditure and projected nominal GDP, remain unchanged, just the surplus from the RBI would take the Centre's FY24 fiscal deficit to Rs 16.99 trillion or 5.6 per cent of GDP, compared with Rs 17.87 trillion or the budgeted 5.9 per cent of GDP, our calculations show.

The main reason why the RBI has been able to transfer such a healthy surplus is because it raked in a massive net income gain from foreign exchange currency sales as a buffer for the rupee during tumultuous geopolitical upheavals last year owing to Russia's invasion of Ukraine.

"The outperformance (of surplus) is supported by large gross dollar sales of $206.4 billion in FY23 (till February 2023) versus $96.7 billion in FY22. The revenues from dollar sales are likely to be substantial, given that profits are calculated on the basis of historical cost of dollar purchase," pointed out said Gaura Sengupta, India economist, IDFC FIRST Bank.

"The RBI has likely maintained risk buffers at the upper-end of the recommended range," Sengupta added.

However, with the financial year just begun, it is apparent that the other budgetary assumptions may not hold true.

While the Indian economy is considered a bright spot amidst a global slowdown, officials say there will be an impact on trade and tax revenues due to recession in many of India's Western trading partners.

"There are a lot of known unknowns and some unknown unknowns. It is also too early to say what impact weather conditions and monsoon will have on farm output and hence on the Centre's rural expenditure," a senior official told Business Standard.

"From a fiscal perspective the dividend represents additional revenue of 0.2 per cent of GDP. However, it may be too early to say with certainty that FY24 fiscal deficit will undershoot the 5.9 per cent GDP target," Sengupta said, and explained that this was because the sharp reduction in implies that FY24 nominal GDP growth, and hence tax collection, could be lesser than what is assumed in the Budget.

"There is also the risk that divestment proceeds could undershoot Budget estimates," Sengupta said.

This is not the first time that the RBI has paid a windfall surplus to the Centre.

As the RBI shifted from a July-June financial year to an April-March financial year in 2021, it transferred Rs 99,122 crore (Rs 991.22 billion).

That amount itself was Rs 45,611 crore (Rs 456.11 billion) higher than the Budget estimates for revenue from dividends by the RBI and PSBs of Rs 53,510.6 crore (Rs 535.10 billion) for FY22 (see chart).

But the highest surplus that the RBI has ever paid to the government was for FY2019-2020, a record Rs 1.23 trillion following the recommendations of the Bimal Jalan Committee on Economic Capital Framework.

In addition to that, the RBI had also transferred Rs 52,637 crore (Rs 526.37 billion) of excess provisions that very year.

The Jalan committee had recommended that the RBI, at all times, should keep its 'realized equity' at 5.5 per cent to 6.5 per cent of the balance sheet, and the rest can be transferred to the central government.

Feature Presentation: Ashish Narsale/

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Arup Roychoudhury
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