Modi Government Gets Massive Boost as RBI Hands Over Record Rs 2.69 Lakh Crore Dividend in Fiscal Bonanza
Mumbai(The Uttam Hindu): The Reserve Bank of India (RBI) made headlines on Friday by approving its largest-ever dividend, a jaw-dropping Rs 2.69 lakh crore, to the Central government led by PM Narendra Modi for the financial year 2024-25. This payout marks a significant 27.4 percent increase from last year's figure of Rs 2.1 lakh crore. This record-breaking dividend is set to help manage the fiscal deficit while allowing the Finance Ministry to keep funding major infrastructure projects and social welfare initiatives aimed at uplifting the underprivileged in 2025-26.
Additionally, during its Central Board meeting on Friday, the RBI raised its contingency risk buffer (CRB) from 6.5 percent to 7.5 percent. This buffer is crucial for covering potential setbacks, such as bad loans, declining asset values, or unexpected economic shocks.
Economists had anticipated that the RBI's dividend to the government would exceed a record Rs 2.5 lakh this year, as the central bank's earnings from selling dollars to stabilize the rupee—especially after its sharp depreciation during 2024-25—are reported to have surged.
In September 2024, foreign exchange reserves peaked to $704 billion and the RBI is estimated to have sold over $125 billion since then, according to estimates by Nomura and DBS Bank.
The previous record dividend transferred to the government stands at Rs 2.1 lakh crore during 2024-25. This was a record jump from the Rs 87,416 crore transferred to the government in 2023-24 for the profit made in 2022-23.
Among the RBI’s earnings, forex transactions are the most significant in light of the central bank’s measures to lower rupee volatility by strong dollar purchases earlier in fiscal 2025 and difference in the current versus historical exchange rate. Added to this are the interest income on government securities and earnings from funds extended to banks in the midst of previous tight liquidity.
Earnings on forex transactions were substantial with gross dollar sales tracking at $371.6 billion in fiscal 2025 till February compared to $153 billion in fiscal 2024, according to IDFC First bank's Chief Economist Gaura Sengupta.
The higher dividend creates fiscal space of 0.1 per cent to 0.2 per cent of GDP, estimates Sengupta. With support from the higher-than-budgeted RBI surplus and savings on a few expenditure heads, the Central government is in a fairly strong position to counter the growth slowdown risks and any potential emergency spending requirements.
Apart from helping to lower the fiscal deficit, the RBI dividend will be a significant infusion to core liquidity in the banking system during the current financial year. This will help to keep interest rates low and allow banks to extend more loans to corporates and consumers to accelerate economic growth and create more jobs.