Less profit from RBI may upset finmin Budget math

Written by Sitanshu Swain | Mumbai | Updated: Aug 12 2011, 08:38am hrs
The Reserve Bank of India (RBI) will transfer R15,009 crore in surplus profit to the government this year, 20% below the previous years R18,759 crore.

The lower amount will dampen the finance ministrys non-tax revenue, in a year when tax receipts are also expected to trail Budget estimates.

For this fiscal, the government has projected an income of R19,129 crore from dividends and surplus from RBI and other public sector banks. The lower realisation from RBI means banks will have to pay higher dividends.

The RBI central board on Thursday approved the transfer of surplus profit for the year ended June 30, 2011 to the Government of India. The central banks financial year ends on June 30.

Last fiscal, the finance ministry had projected R27,461 crore from this stream but got only R22,748 crore. The payment is as per the lower projections, but given the lower anticipated revenue from taxes, this puts additional pressure on the fisc.

Though details of RBIs income and expenses in 2010-11 are yet to be published, income is expected to have fallen due to lower returns from overseas assets in which it has invested Indias forex reserves.

The RBI parks foreign exchange reserves in high-rated bonds and deposits. It follows three principles safety, liquidity and returns while deploying reserves abroad. Analysts point out that returns had been low due to near-zero interest rates in developed economies.

RBIs income in 2009-10 was R32,884.14 crore, 45.85% below the previous years R60,731.98 crore, thanks to low interest income from foreign currency assets. The surplus transferable to the government also in 2009-10 dipped to R18,759 crore from R25,009 crore in 2008-09.

Earnings from foreign currency assets and gold declined 50.58 % in 2009-10 to R25,102.55 crore from R50,796.21 crore in 2008-09.