A falling rupee is usually treated as a macroeconomic problem. It raises the cost of imports, worsens inflationary pressures, unsettles investors and dents national pride. But India’s recent experience has produced a curious paradox. The same rupee weakness that creates external stress has also produced a fiscal bonanza for the Union government.

The Reserve Bank of India’s (RBI) defence of the rupee — by selling dollars from its reserves — has yielded large realised profits, which are then transferred to the Centre as surplus. The RBI is thus not merely managing the currency. It is increasingly becoming a fiscal stabiliser, almost a treasurer to the government. This needs more scrutiny.

The RBI central board has now approved a record surplus transfer of Rs 2,86,588 crore to the Union government for FY 25-26. This is higher than the previous record of Rs 2,68,590 crore in FY 24-25, Rs 2,10,874 crore in FY 23-24 and Rs 87,416 crore in FY 22-23. The latest transfer is reportedly backed by robust RBI earnings, including gains from large dollar sales to support the rupee and higher income on foreign assets.

Nearly Rs 2.9 trillion is not a rounding-off item. It is close to 8 per cent of the Centre’s revenue receipts. It gives the government fiscal breathing space without raising taxes, cutting expenditure or borrowing more from the market. At a time of elevated crude prices, geopolitical uncertainty and pressure on the fiscal deficit, this is a very useful cushion. But it’s worrying for the same reason, for a cushion can quietly become a habit.

The arithmetic is simple. The RBI accumulated dollars over many years when the rupee was much stronger. When it sells those dollars today at a weaker exchange rate, it books a rupee gain. Not a paper gain from revaluing forex reserves, but realised gain from actual dollar sales. Under the economic capital framework, unrealised revaluation gains on gold or foreign exchange are not meant to be distributed. But realised........

© National Herald