In a significant move, the Reserve Bank of India (RBI) has decided to transfer a record dividend of ₹211 trillion ($2.8 billion) to the Indian government. The decision was taken at the RBI’s board meeting held on Friday, August 13, 2021.
The dividend transfer will help the Indian government in managing its fiscal deficit for the financial year 2024-25. It is worth noting that the Indian government has set a target of reducing its fiscal deficit to 4.5% of GDP by 2025-26. This move by the RBI will provide a significant boost to the government’s efforts towards achieving this target.
The RBI’s decision to transfer a huge dividend comes after a year when the central bank did not transfer any surplus to the government due to the COVID-19 pandemic. In the previous fiscal year, the RBI had transferred a dividend of ₹57,128 crore ($7.6 billion) to the government.
The RBI’s decision to transfer a record dividend is in line with the recommendations made by the Bimal Jalan committee. The committee had recommended that the RBI should maintain a contingency reserve of between 5.5% and 6.5% of its balance sheet, which is in line with international best practices.
The RBI’s contingency reserve is used to meet unexpected contingencies such as exchange rate fluctuations, monetary policy changes, and economic emergencies. The Jalan committee had suggested that the excess contingency reserve should be transferred to the government in the form of a dividend.
The decision to transfer a record dividend will help the Indian government in managing its fiscal deficit, which has been adversely affected due to the COVID-19 pandemic. The Indian government has been facing a huge revenue shortfall due to the pandemic-induced economic slowdown.
In conclusion, the RBI’s decision to transfer a record dividend of ₹211 trillion to the Indian government is a significant step towards managing the fiscal deficit. It reflects the central bank’s commitment to maintaining a strong contingency reserve while also supporting the government’s efforts towards achieving its fiscal targets.
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Tags: RBI, dividend, fiscal deficit, Indian government, Bimal Jalan Committee.
