The Reserve Bank of India will likely make another windfall payout to the government on account of its intervention in currency markets to stem the decline in the rupee, according to economists.
IDFC First Bank Ltd. estimates ₹2 lakh crore ($23.1 billion) of transfer by the Reserve Bank of India while QuantEco Research pegs the dividend around ₹1.5 lakh crore for the fiscal year that ends in March. The payout stood at 2.1 lakh crore in the earlier year.
The RBI makes an annual payout to the government from the surplus income it earns on investments and valuation changes on its dollar holdings, and the fees it gets from printing currency. The central bank retains some amount from the surplus to boost its capital, but a large part of the amount is transfered to the government.
While the exact amount is ratified by the RBI’s central board in May, the government pencils in an amount beforehand for its budget calculation.
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The likely bonanza comes at a crucial time as the government is trying to revive an economy weighed down by weak consumption, anemic private sector investments and moderating tax revenues.
Aastha Gudwani, an economist with Barclays Plc. said the bumper RBI dividend will help the government in partly offsetting “sluggish corporate tax revenue and a shortfall in divestment proceeds.” Standard Chartered Plc. Anubhuti Sahay expects the economy’s reliance on RBI surplus transfer to remain high, at around 0.5%-0.55% of gross domestic product, against the usual norm of 0.1%-0.4% of GDP.
The RBI has been selling dollars through the past year to cushion the depreciating rupee. It sold gross $196 billion of forex during April-November against $113 billion in the same period last year, according to IDFC First. The figure for the full financial year through March could be closer to $250 billion, estimates Sahay.
The dollar sales are profitable for the RBI as the greenbacks were acquired at a cheaper exchange rate in the past. The profits, however, are hard to quantify as the RBI doesn’t disclose the average acquisition value.
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“The RBI is expected to maintain elevated dividend levels, likely around ₹2 lakh crore, supported by increased income from foreign exchange transactions as it sold more dollars to stabilize the rupee in 2HFY25,” ICICI Bank Ltd. economists led by Sameer Narang wrote in a note.
Under former Governor Shaktikanta Das, the monetary authority built up a record reserve pool of $705 billion in September. The stockpile has since fallen to $626 billion as the central bank sold dollars to quell the rupee volatility in the wake of Donald Trump’s reelection as US President.
Trump’s pledge to impose hefty tariffs on imports into US boosted the dollar and sent other currencies tumbling. The rupee fell to a record low of 86.7025 earlier this month.
Full year earnings from foreign exchange transactions for RBI are estimated at ₹1.85 lakh crore in the fiscal year as against ₹83,600 crore in fiscal 2024, according to IDFC First estimates.
Some economists, however, said the dividend transfer could have been much higher but for the central bank’s need to set aside more money as provisions to account for an expanded balance sheet.
“The RBI may choose to transfer a higher amount to reserves for contingency provisions, which would reduce the dividends available,” wrote Nomura Holdings Inc. economists led by Sonal Varma in a note last week. “Overall, we do not expect any major adverse impact on the RBI’s dividend transfer to the government, though the quantum should be lower.”
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