RBI Dividend to the Government for FY25
The Reserve Bank of India (RBI) is set to transfer a record ₹2.69 trillion to the central government for the financial year 2024-25 (FY25). This increase represents a 27% rise from the previous year's payout of ₹2.1 trillion, and significantly higher than the ₹87,416 crore transferred in FY23.
Understanding the RBI Dividend
The RBI makes an annual payout to the government from its surplus income, which includes:
- Investments
- Valuation changes on foreign exchange holdings
- Fees from printing currency notes
The Role of RBI
The Reserve Bank of India serves as the central bank and financial regulator of the country, with key functions such as:
- Issuing currency: Sole authority for currency notes, except ₹1 notes issued by the Finance Ministry.
- Government’s banker: Manages banking for central and state governments, including public debt and monetary policy support.
- Banker to banks: Acts as a regulator and lender for commercial banks.
- Monetary regulator: Controls money supply, interest rates, and inflation.
- Foreign exchange manager: Manages currency stability and exchange rates.
Sources of RBI's Income
- Buying and selling bonds (open market operations)
- Managing foreign exchange reserves
- Holding rupee-denominated securities
Economic Capital Framework (ECF)
The dividend amount is decided based on the Economic Capital Framework (ECF), introduced in August 2019 following the Bimal Jalan Committee's recommendations. This ensures RBI maintains sufficient reserves while transferring surplus to the government.
Factors Driving the FY25 Record Dividend
- Active foreign exchange market operations resulting in selling $371.6 billion in forex, more than double the previous year's $153 billion.
- Increased rupee asset earnings with security holdings growing to ₹15.6 trillion by March 2025.
- Strong interest income despite falling government securities yields affecting mark-to-market gains.
Implications for the Government
The substantial dividend provides the government with increased fiscal space, potentially reducing the fiscal deficit by 20-30 basis points, lowering it from 4.5% of GDP to approximately 4.2%. The actual dividend income for FY26 may also exceed the budget estimate of ₹2.56 trillion from the RBI and public sector entities.
