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RBI's surplus payout gives more leeway to Centre as lockdowns take on economy

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24 May 2021 12:21 AM IST

The latest payout of by RBI came as a big surprise as well as a measure of big relief to the resource hungry central government. The banking regulator has paid a dividend of Rs 99,122 crore to the Centre and it's double than the Budgetary Estimates at Rs 53,511 crore, which will help the government tide over the revenue losses from lockdowns and extend more support to the pandemic hit industries and the poor people. In fiscal 2020, the RBI had paid only Rs 57,128 crore in dividend. The RBI's dividend is around $13.6 bn or 0.5 per cent of GDP to the government. The central bank has changed its accounting period, aligning it with the fiscal calendar (April-March) from this year, instead of the earlier July-June calendar.

The higher payout followed the Bimal Jalan Panel report that had set a new economic framework capital buffer for the central bank along with the contingency risk buffer at 5.5 per cent. It appears the RBI has recognised some gains from revaluation of its foreign currency assets.

The average holding cost for the US Dollar would be around Rs55.70, going by last year's annual report. Now, if the RBI sells those Dollars at the current rate of Rs72-73, healthy profits can be booked. Since January and February, the RBI's gross sales of foreign currency surged. In its May bulletin, data released by the RBI showed that it had net sold $5.7 billion during March.

The high transfer also takes into account the record open market operations (OMO) conducted by the RBI in the last fiscal year. It had bought bonds worth Rs 3 trillion during the fiscal, on which it must have earned a healthy interest income from the government.

Analysts say, this considerably higher surplus transfer will offer the government a buffer to absorb the losses in indirect tax revenue that are anticipated in May-June due to the impact of the lockdowns on the level of consumption on discretionary items and contact-intensive services. The government has flexibility now to increase support to the economy while maintaining its fiscal deficit estimate at 6.8 per cent for FY21-22.

The high commodity prices, says an Icra report, at a time when demand and pricing power are subdued, would dent the margins of corporates in many sectors, compressing the growth in direct tax collections.

In Barclay's view, the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the central bank. In fact, it was this move which could have helped the central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the central bank's income for the year.

During the FY21-22 budget announcement, the government had prioritised growth, and announced its intention to increase its fiscal deficit targets significantly. For FY21-22, there was a significant buffer around the government's spending projections and conservative forecasts for revenue growth, which meant the risks of fiscal slippage were small. However, the resurgence of Covid-19 infections on an unprecedented level has made everything topsy-turvy.

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