RBI Dividend To Help Govt With Defence Budget

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June 07, 2025 10:37 IST

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Defence expenditure was pegged at 1.4 per cent of GDP in the Budget for 2025-26 but it may widen, depending on tensions between India and Pakistan.

Photograph: Francis Mascarenhas/Reuters
 

The Reserve Bank of India's record surplus transfer to the government would moderately offset the impact of any likely rise in defence expenditure on public finances.

While the central bank announced Rs 13,000 crore more than what was projected in the FY26 Union Budget, from RBI's surplus transfer as well as dividend from nationalised banks and financial institutions, markets had expected between Rs 31,000 crore and Rs 80,000 crore more.

Had the market expectations been met, the government would have had sufficient money to meet higher defence expenditure without affecting projected expenditure on other heads, particularly capital, and meet the fiscal deficit target.

Defence expenditure was estimated at 1.4 per cent of GDP in the FY26 Budget, but it may widen in case of another conflict between India and Pakistan.

Even if defence expenditure is raised by 0.25 per cent of GDP, that would mean an extra Rs 89,000 crore.

Money matters (in Rs trillion)

Though the RBI's decision on surplus transfer was announced for 2024-2025 (FY25), it would come to the exchequer in FY26.

It generally happens this way unless an interim dividend is announced. For the past four years, nationalised banks and financial institutions had also been paying dividends to the government.

Highest dividend

The RBI's dividend to the government in FY26 is the highest in absolute terms and also as a percentage of total non-tax revenues, which also includes dividend from the central public-sector enterprises, interest receipts, and user charges.

However, as a percentage of revenue receipts, the dividend is lower than FY20.

Much of the revenue receipts is accounted for by tax receipts, which are expected to be buoyant this year unless the economy slows down.

Feature Presentation: Aslam Hunani/Rediff.com

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