RBI Surplus To Centre Falls Sharply To Rs 30659 Crore

Marco Green
August 11, 2017

For the 12 months ended June 30, 2017, the RBI will transfer a surplus of Rs. 30,659 crore to the Government of India, sharply lower than the previous year's Rs. 65,876 crore.

The Reserve Bank of India (RBI) didn't cite a reason for the fall in dividend payout to the government. In the previous year, the Central bank had paid Rs 65,896 crore to the government, which came as a boon to the government in covering the deficit. That amount is less than half of Rs 65,876 crore that the central bank transferred a year ago.

The government had expected Rs 58,000 crore in dividend from the RBI in 2017-18.

For the year 2015-16, the RBI board had approved the transfer of surplus amounting to Rs 65,876 crore to the government.

The decline will hit the government hard as it could make it very difficult for New Delhi to meet its fiscal deficit target of 3.2 percent of gross domestic product for the year ending in March.

Due to increased liquidity in the system, the RBI has been borrowing money under reverse repo and paying interest which has implications on the revenue, he added. "I think one reason is the cost of seigniorage, - which is higher the more the RBI printed notes".

It might be recalled RBI is yet divulge the finer aspects of its currency demonetisation drive launched on 8 November, 2016.

Prime Minister Narendra Modi had abolished high-value bank notes in a bid to fight corruption that removed 86 per cent of the currency in circulation hitting consumption and capital investments a year ago.

There were costs of printing a huge amount of new notes to replace the notes rendered invalid following demonetisation.

However, he did not give total cost the Reserve Bank incurred on the printing of new currency notes.

The lower amount will be a concern since the government's non-tax receipts will be affected.

According to India Ratings & Research Chief Economist D K Pant, the significant decline in dividend is due to reverse repo transactions, printing of notes and appreciation in rupee's value against the U.S. dollar. While the note ban hadn't increased tax buoyancy much (direct tax collection grew 19% by July-end against 15.3% budgeted for FY18), early start of spending has kept the fiscal deficit high relative to the budget line so far.

Other reports by Click Lancashire

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