India's central bank is anticipated to distribute dividends worth up to Rs 1 lakh crore (USD 12 billion) to the federal government, according to economists. This move is poised to bolster New Delhi's financial resources and assist in meeting its budget deficit objectives.
The Reserve Bank of India's board of directors is scheduled to convene this week, with expectations of approving a dividend ranging from 800 billion to one trillion rupees, as per economists' projections. Last year saw a transfer of 874.2 billion rupees, while the government had set its target at 1.02 trillion rupees, inclusive of dividends from state-controlled banks.
A potential dividend payout of one trillion rupees would mark the highest in five years. This increased payout is likely to aid the federal government in achieving its fiscal deficit target of 5.1 per cent of the gross domestic product for the current fiscal year. Moreover, it could fortify revenues for the incoming government following the conclusion of general elections next month, facilitating greater flexibility in expenditure.
Teresa John, an economist with Nirmal Bang Institutional Equities, anticipates the dividend payout to hover around one trillion rupees. The RBI annually disburses dividends to the government from surplus income generated on investments, valuation changes on its dollar reserves, and currency printing fees. It is mandated to maintain a contingency risk buffer of 5.5 per cent to 6.5 per cent of its balance sheet.
Key factors contributing to a substantial surplus transfer include higher interest income earned on securities both domestically and abroad, attributed to tighter monetary policies in advanced economies and domestically. However, earnings from foreign exchange transactions might witness a decline due to reduced dollar sales by the central bank last fiscal year.
A sizable dividend, coupled with a high cash surplus, may enable the finance ministry to reduce bond sales, thereby aiding in lowering borrowing costs. This anticipated bonanza precedes the inclusion of Indian bonds into JPMorgan Chase and Co.'s emerging market index, expected to attract inflows of up to USD 25 billion.
Barclays Plc.'s economists Shreya Sodhani and Amruta Ghare estimate a dividend payout exceeding a trillion rupees, with potential increases if adjustments are made to the RBI's economic capital framework. Such revisions could lead to implications on fiscal matters, including increased dividends to the government.
