RBI halves dividend payout to government to Rs30,659 crore

RBI halves dividend payout to government to Rs30,659 crore”

The Reserve Bank of India has sharply cut its annual dividend transfer to the Centre for 2017, which could adversely impact the latter's budget maths.

Last fiscal, the RBI had transferred Rs 65,876 crore surplus as a dividend to the government.

The Reserve Bank of India on Thursday said it will transfer Rs 30,659 crore surplus to the government for the year ended June 30, 2017.

The apex bank, however, did not cite any reasons for paying less dividend. However, an official had later said that the RBI's share had been reduced to Rs 58,000 crore. The RBI's central board, which met on Thursday, approved the amount to be transferred.

The decline means the government could have a hard time meeting its fiscal deficit target of 3.2% for the year ending in March, reported Reuters.

Explaining the rationale, former RBI Deputy Governor R Gandhi said for the past few years, returns have been coming down because of negative interest rates in the developed countries. As per reports by Economic Times, the dip in the transfer of surplus this year may be because of various factors including higher cost of printing new currency notes and cost of managing excess liquidity faced by phasing out of Rs 500 and Rs 1000 notes.

As on November 8, 2016, the total value of the currency in circulation was Rs 17.7 lakh crore.

The government had, in December previous year, issued an ordinance for scrapped currency notes, paving the way for potential surplus transfer from the RBI on account of demonetisation.

"Operational expenses in cost of printing new currency and the associated logistics of collecting old notes is likely to have gone up", said Saugata Bhattacharya, chief economist at Axis Bank. Last year the huge amount helped the government in covering the deficit but this year the scenario is totally different. 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.

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