The Aryavarth Express
Agency (New Delhi): The Reserve Bank of India (RBI) has announced the transfer of a record Rs 2.11 lakh crore surplus to the government for the financial year 2023-24. This historic transfer, declared on 22 May, represents the highest yearly surplus ever handed over by India’s central bank.
The RBI explained that the surplus transfer was determined based on the Economic Capital Framework (ECF) adopted on 26 August 2019, following recommendations from the Bimal Jalan committee. A significant increase in income from forex holdings and other factors led to this sharp rise in surplus.
This substantial dividend, to be reflected in the government’s accounts for the fiscal year 2025, far exceeds the initial expectations. The government had anticipated a transfer between Rs 85,000 crore and Rs 1 lakh crore, but the final figure has significantly surpassed these projections. While some view this development as a financial boon for the government, enhancing its liquidity and expenditure capabilities, others raise concerns about its effective utilization.
Typically, about 70 percent of the RBI’s annual surplus is transferred to the government, while the remaining 30 percent is allocated to a contingency fund to address emergencies, such as an unforeseen drop in the value of the RBI’s investments.
Aditi Nayar, chief economist and head of research and outreach at ICRA Ltd, emphasized the implications of this surplus. “The amount of Rs 2.11 trillion is well above the budgeted figure of Rs 1.5 trillion in the Interim Budget for FY2025 under dividends and profits, which includes dividends from PSUs,” she noted. Nayar added that this unexpected surplus would boost the government’s financial resources for FY2025, potentially allowing for increased expenditures or sharper fiscal consolidation than anticipated. However, she cautioned that the challenge lies in effectively utilizing the additional funds within the limited timeframe after the final budget is approved by Parliament.
In addition to the surplus transfer, the RBI announced an increase in the contingent risk buffer (CRB) to 6.50 percent for FY2023-24. This follows a gradual increase from 5.50 percent, maintained during 2018-22 to support growth amid adverse macroeconomic conditions and the Covid-19 pandemic. With economic recovery evident in FY 2022-23, the CRB was raised to 6.00 percent, and the continued robust economy has justified a further increase to 6.50 percent.
These decisions were approved during the 608th meeting of the RBI’s central board of directors, reflecting a cautious yet optimistic outlook on India’s economic trajectory. The government had budgeted a dividend of Rs 1.02 lakh crore for FY2025, 2.3 percent lower than the revised estimate of Rs 1.04 lakh crore for FY2023-24.
This development raises several questions about the future economic strategies of both the RBI and the government. How will the government effectively allocate this surplus to maximize economic growth? Can the increased CRB buffer provide adequate safeguards against potential economic downturns? As these questions loom, the substantial surplus transfer on 22 May 2024 marks a significant moment in India’s fiscal policy landscape.