A Windfall Wrapped in Caution

The RBI’s record Rs. 2.69 lakh crore dividend offers fiscal relief and fuels growth, but raises fresh questions about autonomy and overdependence.

The Reserve Bank of India (RBI) has announced a record Rs. 2.69 lakh crore dividend payout for the FY 2024-25 in favour of the Government of India, reflecting strong financial performance and improved risk management. This payout, 1.1 percent of GDP, marks a 27.4 percent increase from last year and triples the amount disbursed two years ago. The sharp rise from Rs. 87,416 crore in FY 2022-23 to Rs. 2.69 lakh crore in FY 2024-25 supports the government's fiscal consolidation and infrastructure investment goals.

Section 47 of the RBI Act, 1934, governs the framework of dividend payout which mandates surplus distribution only after providing for key risks. The Economic Capital Framework (ECF), formulated in 2014 and later refined in 2019 by the Dr. Bimal Jalan Committee, helps maintain financial stability through the Contingent Risk Buffer (CRB) provisions. The committee had initially set a range of CRB as 5.5 percent–6.5 percent of RBI’s balance sheet. This system allows RBI to keep enough capital for its operations while supporting government finances.

The RBI has raised the CRB to 7.5 percent, adjusting its range to 4.5–7.5 percent, signalling a cautious stance on risk while still delivering a substantial dividend. The payout could have topped Rs. 3 lakh crore had the Jalan Committee’s CRB limits been retained. Key drivers of the record surplus include robust forex sales of $371.6 billion, higher interest income, expanded holdings of Rs. 1.95 trillion in government securities, and increased gold reserves—all boosting earnings and financial resilience.

This bonanza allowed the RBI to transfer Rs. 2.69 trillion ($32 billion) to the government—exceeding the budgeted dividend estimate from the RBI and public-sector undertakings of Rs. 2.56 trillion. The windfall provides much-needed fiscal headroom for New Delhi, which has pledged to keep the deficit at 4.4 percent of GDP. That target may come under strain amid heightened tensions with Pakistan and a flurry of defence and infrastructure spending in border regions, including the execution of Operation Sindoor. Tax concessions and customs-duty cuts have already knocked over Rs. 1 trillion off revenues.

In this context, the RBI’s largesse offers a vital cushion, sustaining tax relief while preserving fiscal discipline. Yet, two consecutive years of record transfers has stirred unease. Critics warn of creeping reliance on the central bank’s surplus, raising concerns about long-term financial autonomy.

While the RBI has raised the CRB to 7.5 percent, some experts advocate for an even higher buffer to mitigate rising market uncertainties driven by ongoing geopolitical tensions and the disruptive tariff policies of the US. Additionally, analysts warn against an over-reliance on non-tax revenue, emphasizing that such income streams are inherently volatile compared to tax revenues. Dependence on fluctuating sources could pose risks to fiscal calculations, particularly during unforeseen economic disruptions or catastrophic events.

This year, RBI actively intervened in Forex markets to support the rupee. Recently, it has allowed the currency to float freely, and after initial depreciation, the rupee has stabilized around Rs. 85–86. With global crude oil prices remaining steady, RBI's forex market activity may decline, potentially affecting surplus levels. However, low inflation, a stable rupee, and controlled crude prices could ease the government's fiscal management, reducing its reliance on RBI dividends.

While the concerns raised are not unwarranted, understanding the governance structure of the RBI is crucial in assessing its rationale behind surplus transfer decisions. RBI's Board plays a pivotal role in this process, conducting thorough evaluations of the ECF before approving dividend distributions. The Board's review process includes comprehensive assessments of both domestic and global macroeconomic conditions, ensuring that surplus transfers align with broader objectives of economic stability and financial resilience.

There have been several instances in the past where the RBI has faced government pressure to adjust interest rates in favour of populist measures. However, the central bank has consistently upheld its autonomy. Time and again, RBI has navigated such challenges, reinforcing its role as an independent institution dedicated to maintaining economic stability and sound monetary policy.

The RBI pegs India’s growth at 6.5 percent—nearly twice the global average—a view echoed by the World Bank and IMF. The country’s resilience through past crises, from the 2008 crash to the pandemic, underscores its steady pursuit of development. While policy decisions invite debate, their underlying rationale holds firm. The RBI’s record dividend payout reinforces both the economy’s momentum and the government’s ambition to achieve its Viksit Bharat vision by 2047.

(The author is a Chartered Accountant with a leading company in Mumbai. Views personal.)