Friday, 20 Jun, 2025
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Fiscal resilience over the long haul requires fundamental reforms—broadening the tax base, addressing GST flaws, and reviving the stalled disinvestment agenda. Without these, the RBI’s easing measures will offer only temporary relief, not a permanent fix.
The Reserve Bank of India (RBI) has announced a record dividend payout of Rs 2.69 lakh crore to the central government for FY25—more than triple last year’s Rs 87,416 crore—buoyed by substantial gains from US dollar sales and increased interest income on securities. With tax buoyancy moderating and welfare outlays rising, the timing couldn’t be more strategic.
The decision, taken during the central bank’s 616th Central Board meeting chaired by Governor Sanjay Malhotra, comes at a critical juncture for the government’s fiscal position. This significant windfall will offer vital support amid rising defence expenditures linked to heightened tensions with Pakistan and the fiscal pressures posed by new US tariffs.
Notably, the fiscal windfall helps ease short-term pressures on bond markets, cushions the fiscal deficit, and gives the government room to maintain capital spending without ramping up borrowing. Since the Covid-19 year of 2021-22, the RBI has steadily increased its surplus transfers to the government. This trend persists even as the RBI raised its Contingent Risk Buffer to 7.5 per cent for FY25, up from 6.5 per cent the previous year. The boost in RBI’s income mainly comes from active foreign exchange operations, including large US dollar sales, and higher interest earnings on securities.
But policymakers would do well not to mistake this stroke of monetary generosity for a structural solution. Whether the Centre opts to front-load infrastructure investments, strengthen social schemes, or pare down its borrowing plan, each pathway carries distinct political and economic ramifications. And crucially, this is a one-off gain—not a sustainable revenue stream.
Long-term fiscal resilience still hinges on deeper structural reforms: widening the tax base, fixing GST inefficiencies, and rebooting the long-stalled disinvestment agenda. Until those fundamentals are addressed, RBI’s largesse can serve only as a temporary cushion—not a lasting cure.
Economists at SBI highlight that the RBI’s record dividend will significantly ease the government’s fiscal position and support growth in India’s expanding economy. Finance Minister Nirmala Sitharaman had projected a combined dividend income of Rs 2.56 lakh crore in her Budget for FY26 from the RBI and public sector financial institutions. With this unprecedented RBI transfer, the actual dividend inflow is set to exceed these budgeted expectations, providing the government with enhanced fiscal flexibility.
The RBI’s gross dollar sales surged to $399 billion in FY25, a sharp rise from $153 billion in FY24. This increase was driven by a negative Balance of Payments (BoP) position in FY25, reflecting a slowdown in capital inflows. Meanwhile, the RBI’s foreign currency assets grew 1.3 per cent year-on-year (as of March 28, 2025), primarily due to revaluation gains. These assets now constitute 64.4 per cent of the RBI’s total assets, while government securities account for 20.7 per cent. Of the total foreign currency assets, approximately 85.6 per cent are held in securities, with the remainder deposited with other central banks and the Bank for International Settlements (BIS).
While the RBI’s surplus transfer exceeded government estimates, it came in below what markets had hoped for. At the same meeting, the central board raised the range for the Contingent Risk Buffer (CRB) to 4.5–7.5 per cent of the balance sheet and chose to maintain it at the upper end for FY25. The apex bank has steadily increased this buffer under the economic capital framework introduced in 2019. In a volatile global environment, a higher buffer is seen as a prudent step that gives the central bank more flexibility. With income on the rise, the timing is right. Without the CRB hike, the dividend could have topped Rs 3.5 lakh crore. Still, it’s hoped the RBI won’t lean toward the lower end of the new range in the future, especially as the government works to meet its fiscal goals.
More importantly, in this context, the RBI may be wise to avoid excessive intervention in the foreign-exchange market. While currency stability has clear benefits, overreach could erode private sector discipline in managing forex risks.
