RBI’s move comes close on the heels of Finance Minister Nirmala Sitharaman’s six-pronged economic booster at a time when the Indian economy is reeling under the pressure of slowing growth, falling behind China.
In a massive boost to Narendra Modi government’s coffers, the Reserve Bank of India has decided to give it the highest ever cash payout of Rs 1.76 lakh crore by way of dividends and transfer of the central bank’s surplus reserves. RBI’s move comes close on the heels of Finance Minister Nirmala Sitharaman’s six-pronged economic booster at a time when the Indian economy is reeling under the pressure of slowing growth, falling behind China. RBI on Monday said that its central board has accepted the recommendations of Bimal Jalan-panel. The high-level panel, under the leadership of former RBI governor Bimal Jalan, was formed to recommend ways to utilise RBI’s excess cash reserve and part transfer to the government.
Subsequently, RBI board has decided that it would transfer Rs 1,76,051 crore to the government. This sum will include Rs 1,23,414 crore of dividends due from the previous financial year 2018-19, and Rs 52,637 crore of excess provisions, according to the revised Economic Capital Framework (ECF), the RBI said in a statement. The Rs 1.23 lakh crore dividend to be received by the government exceeds its own expectations. The government had already received Rs 28,000 crore in interim dividend from the RBI, and had estimated the remaining final dividend to be at Rs 90,000 crore, bringing it to a total of Rs 1.18 lakh crore.
The money will go a long way in helping the government prop up the economy. “The funds ensure that government can provide the necessary boost to the economy while keeping its fiscal deficit contained,” Bloomberg quoted Dharmesh Kant, head of retail research, Indianivesh Securities. “We see this as a positive move for sectors like banking, infrastructure, cement and metals.” Not only this, the RBI funds may come in as a saviour when the government is staring at a possible tax revenue shortfall. The RBI money will alleviate the risks arising out of a tax revenue shortfall for the government, Bloomberg cited Shubhada Rao, chief economist at Yes Bank, as saying.
Further, It will allow the government to immediately infuse capital in state-run banks, Shubhada Rao said. Finance Minister Nirmala Sitharaman had last week announced an immediate infusion of Rs 70,000 crore in recapitalisation for India’s PSU banks. This was a part of her six-part economic booster, mainly to release funds and make credit available to the India Inc.