RBI likely to budge; to give Rs 10000 crore interim dividend
MUMBAI: The Reserve Bank of India (RBI) dividend stalemate was back in news on Tuesday with unconfirmed reports saying the central bank was likely to replenish government coffers with Rs 10,000 crore in the next few weeks.The proposed amount is the interim dividend, calculated for the first six months of the July-June financial year that RBI follows. However, there was no official word either from the government or the banking regulator in this regard.
The central bank had declined government requests to pay an additional amount as the dividend payout for the current fiscal was lower than the budgeted figure.But last month, RBI governor Dr Urjit Patel categorically dismissed any such possibility.An interim dividend will help government spending, but the math behind the Rs 10,000 crore figure remains a puzzle.For FY18, the centre budgeted Rs 58,000 crore dividend from RBI, but instead the RBI paid Rs 30,659 crore, lower than Rs 65,876 crore it transferred a year
before. This was largely on account of the additional costs incurred on printing and managing excess liquidity following demonetisation. Expenses doubled due to a 135 per cent rise in printing costs and so were provisions that jumped 14 times higher than the previous year.
As per the Banking Act,the central bank has to plough back profits to the Centre. This figure is derived after making provisions for bad and doubtful debts, depreciation in assets, contributions to staff and
others. RBI earns income primarily from the interest it gets from the purchase and sale of government securities, from lending to banks, and on bond holdings.
Net profit is calculated by subtracting the operation expenditure, other expenses and allocations towards the Contingency Reserve and the Asset Development Reserve.The lower payout would encourage the centre to borrow from the market, widening the fiscal deficit in the process.
Payout Mystery
The RBI is entitled to pay a dividend to the government of India under Section 47 (Allocation of Surplus Profits) of the RBI Act, 1934. Before every annual Budget announcement, the government and the RBI discuss the amount to be transferred as dividend every year. The government puts forward a number, and the RBI, on the basis of its profits and funds needed to be kept aside for contingencies, puts forward a number. After calculations, the RBI provides an indicative figure, which the government puts under the ‘non-tax revenue’ head in the receipts budget.