Reserve Bank of India has given clearance to a dividend of Rs 57, 128 crore to the government. The decision was finalized by the Central Board of the RBI led by the governor Shaktikanta Das. The last year’s payout to the government by RBI stood at Rs 176,000 crore, comprising Rs 123,000 crore as the dividend and Rs 52,640 crore from its surplus capital. In a time when the government is compelled to cushion the blow of the pandemic, it has taken a toll on its fiscal deficit which has skyrocketed to 83.2 percent as on June 30. Indian economy is witnessing its first full-year contraction in more than four decades.
"The Board reviewed the current economic situation, continued global and domestic challenges and the monetary, regulatory and other measures taken by RBI to mitigate the economic impact of COVID-19 pandemic. It discussed the proposal of setting up an Innovation Hub while deliberating over various areas of operations of the Bank during the last year and approved the Annual Report and accounts of the of the Reserve Bank for the year 2019-20. The Board also approved the transfer of Rs 57,128 crore as surplus to the Central Government for the accounting year 2019-20, while deciding to maintain the Contingency Risk Buffer at 5.5 percent," the central bank said in an official statement.
The way out for the government in this scenario is to plug the funding hole with the payout received from the central bank. The government is also looking at selling state-owned assets which is a move towards privatization. For example, BPCL’s privatization is underway and it is expected to be completed by March next year. The chorus for the RBI to pay for the government’s debt is getting stronger, along the lines for what has been done in Indonesia and the Phillipines. However, experts warn of the negative impact of such a move on the country’s credit rating and inflation. Hence, it is time for the RBI and the government to tread with caution.