RBI's Bumper Dividend Boosts India's Fiscal Landscape

The Reserve Bank of India (RBI) has declared a staggering Rs 2.69 lakh crore dividend for the 2024-25 fiscal year, which marks a significant increase from the previous year's Rs 2.11 lakh crore. This financial boost is expected to strengthen the fiscal position of the Indian government, making room for additional economic growth.

This development follows an adjustment in the central bank's contingency risk buffers, now set between 4.5% and 7.5% of its balance sheet. The RBI's substantial dividend surpasses initial budget forecasts, offering the government leeway in reducing the fiscal deficit by 20 basis points or expanding expenditure by Rs 70,000 crores, according to SBI Research's Ecowrap.

The RBI achieved this surplus by capitalizing on robust dollar sales, foreign exchange gains, and increased interest income. As the RBI maintained active liquidity operations, it witnessed a peak in foreign exchange reserves and engaged in extensive dollar trading to stabilize currency values. The liquidity is expected to remain in surplus, bolstered by open market operations and a balance of payments surplus.

(With inputs from agencies.)