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The Reserve Bank of India on Thursday paid a dividend of nearly Rs 66,000 crore to the government, the highest ever from the central bank in its 80-year history, and 22% more than it paid last year.
MUMBAI: The Reserve Bank of India on Thursday paid a dividend of nearly Rs 66,000 crore to the government, the highest ever from the central bank in its 80-year history, and 22% more than it paid last year. On a point to point basis, RBI's dividend payment to the government is up more than four times in as many years.
This payment can help ease the government's finances, help meet its fiscal deficit targets, provide liquidity to the system so that the rate of interest remains low and also make available funds for the government's capital expenditure, economists and bond dealers said. The central government's move is also seen as another proof of its active support to the government's initiatives to kick start the slowing economy, they said.
As banker to the central and state governments and the banks in the country, the RBI has several sources of income. The three main sources of income are the coupon payments it gets on its holding of government securities, the interest it receives from banks which borrow money from it (repo operations) and also interest incomes on its holdings of sovereign bonds like US treasury bills etc. Every year, after meeting its expenses and keeping aside part of its total profits, the central bank transfer a substantial amount to the central government exchequer.
This year's dividend payment by RBI is also more than the Rs 64,500 crore that the finance minister had budgeted under 'Dividend/Surplus of RBI, nationalized banks & financial institutions', Budget papers showed. Since the nationalized banks are in the process of paying dividend to the government, the central exchequer's receipts under this head is sure to exceed the Budget estimates by a substantial margin, economists said.
According to Siddhartha Sanyal, chief India economist, Barclays Capital, the higher than the budgeted surplus transferred by the RBI to the government makes the fiscal deficit target even more achievable. "It can potentially help boosting government spending, which will, in turn, likely enhance liquidity in the banking system in the coming months," Sanyal said.
Bond dealers, on the other hand, see this large dividend from the RBI as another proof how the central bank is extending a helping hand to the government in the latter's endeavour to revive the economy and on the face of all the talks about a friction between the government and the central bank. "Rate cut is not the only thing that the central bank can decide up on to help revive the economy," said a bond dealer with a leading bond house. "Such large dividends can also help the government's cause," the dealer said.
