The RBI is recalibrating its provisioning norms to sustain high payouts, raising concerns about its long-term financial prudence and independence. Is the central bank slowly turning into a fiscal backstop for the Government?

For the financial year (FY) 2023-24, the Reserve Bank of India (RBI) Board approved a record dividend transfer of Rs 210,000 crore to the central Government. This was reflected in the accounts of the latter for the FY 2024-25. This amount was 2.4 times the dividend transfer of about Rs 87,400 crore made by the RBI for FY 2022-23 and available for use by the Centre during FY 2023-24.

Even when compared to the provision of about Rs 80,000 crore made by Sitharaman in the interim budget for FY 2024-25, the dividend amount made available from the RBI i.e. Rs 210,000 crore for use by the central Government during the year was over two-and-a-half times.

The Centre thus got a cushion of Rs 130,000 crore (210,000-80,000) or about 0.4 per cent of the country’s gross domestic product (GDP) enabling it to better manage its fiscal situation. The actual fiscal deficit (FD) for the year was 4.8 per cent against the 5.1 per cent target. During FY 2024-25, the RBI has done a repeat.

For FY 2024-25, it has announced a dividend of Rs 269,000 crore to the Central Government which will be available to the latter for use during FY 2025-26. In her Budget for FY 2025-26, Sitharaman had projected dividend income of Rs 256,000 crore cumulatively from the RBI and public sector financial institutions. The dividend from the RBI alone is Rs 13,000 crore higher. According to SBI Research’s Ecowrap, this will create a cushion of around Rs 70,000 crore which translates to 0.2 per cent of the GDP. As a result, the FD is expected to be 4.2 per cent of GDP against the budgeted level of 4.4 per cent, with other things remaining unchanged.

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