The dividend payout of Rs 99,122 is 0.5 percent of GDP, more than double the budget estimate of Rs 45,000, and was made possible by the increased income from RBI’s domestic assets and changes in its accounting practices – the RBI recently allowed itself to Recognize profits from its foreign exchange transactions from a weighted average cost perspective.After the RBI surprised the center with a record surplus of Rs 99.122 billion for FY21, analysts said this will help the government overcome the lost revenue from lockdowns and provide greater support to the pandemic-hit industries and the poor. In fiscal 2020, the RBI had only paid the government a dividend of Rs 57,128 billion, and the Treasury Secretary had only budgeted Rs 45,000 billion from the central bank.
The higher payout followed the report by the Bimal Jalan panel, which set a new economic framework for the capital buffer for the central bank as well as a buffer for emergency risk of 5.5 percent.
In response to the second wave of the pandemic, the government has so far provided only 26,000 rupees for free food distribution to 80 million people.
Barclays India chief economist Rahul Bajoria said the positive surprise increased the fiscal stretched government’s range of spending and gave it more room for more relief to mitigate the effects of the second wave of the pandemic.
The dividend payout of Rs 99,122 is 0.5 percent of GDP, more than double the budget estimate of Rs 45,000, and was made possible by the increased income from RBI’s domestic assets and changes in its accounting practices – the RBI recently allowed itself to Recognize profits from its foreign exchange transactions from a weighted average cost perspective.
“Our estimates show that this move could have helped the central bank increase the returns on its holdings of overseas assets. In addition, increased holdings of Gsec likely further increased central bank revenues for the year,” he said.
The record payout of dividends will ease some fiscal pressure on the government and give it more leeway for the current financial year. This could be especially helpful in mitigating the effects of the second wave, Bajoria added.
Aditi Nayar, chief economist at Icra Ratings, said this significantly higher surplus transfer would provide a buffer for the government to offset the losses in indirect tax revenue expected from May to June due to the impact of lockdowns on consumption levels, discretionary and contact-intensive services.
“In addition, at a time when demand and pricing power are subdued, high commodity prices will squeeze corporate margins in many sectors and compress the growth of direct tax collection,” warned Nayar, saying this higher dividend will help offset some of that Cushion sales shocks.
After this dividend payment for the accounting period from nine months to March 2021 (July 2020 – March 2021), RBI has a contingency risk buffer of 5.50 percent of its capital.