MUMBAI: The RBI dividend to the central government for the fiscal year 2024–25 (FY25) is likely to be substntial, buoyed by elevated income from foreign exchange (forex) operations and robust returns on overseas investments, according to reports.
Analysts estimate that the RBI dividend transfer could range between Rs1.5 lakh crore and Rs2 lakh crore, aligning with the previous fiscal year’s record payout of Rs2.1 lakh crore. This anticipated windfall comes at a crucial time, as the government faces sluggish disinvestment proceeds and seeks additional revenue sources to support its fiscal plans
Forex operations
Between April and November 2024, the RBI sold approximately $196 billion in the forex market to stabilise the rupee, with full-year sales projected to reach $250 billion. These transactions, executed at favourable exchange rates, are anticipated to generate significant profits for the RBI, further boosting its surplus income and enabling a sizable transfer to the government.
Overseas investments
Approximately 68 per cent of the RBI’s balance sheet comprises foreign currency assets, including significant holdings in US government securities.
In FY24, a dip in US interest rates reduced the need for mark-to-market provisions, contributing to a record dividend payout of Rs2.1 lakh crore.
If the decrease in interest rates continues in FY25, the RBI may be able to declare a large dividend even if profits from forex sales dip.
The anticipated surplus will provide crucial financial support for the government during a period of weak consumption, sluggish private investments, and moderating tax revenues. The government is heavily reliant on the RBI’s dividend to offset revenue shortfalls and fund various spending programs.
Balancing act
Despite the expected fiscal boost, concerns have been raised about the RBI’s ability to balance short-term payouts with long-term financial stability.
As the central bank’s balance sheet expands, higher provisions for contingency reserves may be necessary, potentially limiting the quantum of dividends transferred to the government.
In summary, the RBI’s strategic forex operations and favourable investment returns are set to deliver a significant dividend to the government in FY25, providing a vital cushion amid fiscal challenges.
