RBI may bump up dividend to help Modi fund the generous budget sops

• The government is reportedly planning to secure a ₹690 billion dividend from the central bank for the coming fiscal year.
  
• This is well over twice the dividend of ₹280 billion it expects from the RBI in the current fiscal year, in addition to a ₹400 billion surplus transfer.
  
• The issue of the transfer of dividends has been a particularly contentious one, leading to a very public spat between the central government and the RBI last year.

Acting Finance Minister Piyush Goyal presented a pretty generous interim budget last week featuring a cash handout to farmers, a pension scheme for informal workers and tax breaks for the middle class. It also promised not to overshoot its fiscal deficit target for this year by more than 0.1% of GDP.

While Most critics were confused as to how the government would finance these spending obligations, especially in the wake of a shortfall in tax revenues. The answer may lie with the country’s central bank.

The government is planning to secure a ₹690 billion dividend from the Reserve Bank of India (RBI) for the coming fiscal year, according to media reports citing an official from the finance ministry. This is well over twice the dividend of ₹280 billion it expects from the RBI in the current fiscal year, in addition to a ₹400 billion surplus transfer.

This figure reportedly includes allocations from the previous fiscal years that the government didn’t take because it’s finances were in a better condition.

In its overall Budget for 2019-2020, the government has earmarked a total contribution of ₹830 billion in the form of surpluses from the central bank, public-sector banks and other financial institutions.

The issue of the transfer of dividends has been a particularly contentious one, leading to a very public spat between the central government and the RBI and questions regarding the institutional autonomy of the central bank and the government’s attempts to contain its fiscal deficit.

However, with a former government insider, Shaktikanta Das, in place at the helm of the central bank, consensus may be easier to achieve. The RBI has cash reserves of just under ₹10 trillion, but this mainly for lending to domestic banks and sustaining liquidity and by effect, aggregate demand in the economy.



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