Expect high dividend payments by RBI to government to continue: SBI Research

NEW DELHI: After RBI paid an unexpectedly high dividend to the central government the last financial year, it is now expected that higher dividend payments could continue in the current year too.

A report put out by SBI Research authored by Soumya Kanti Ghosh, Group Chief Economic Adviser, asserted the possible high dividend payments in 2024-25 are likely due to high US bond yields, income boost at RBI, and high foreign exchange reserves.

In 2023-24, a bumper Rs 2.11 trillion dividend was transferred by the Reserve Bank of India (RBI) to the government. It was higher than the government's budget estimate of about Rs 1 trillion, as against Rs 87,416 crore paid in 2022-23.

"...there is a large probability of RBI dividend being healthy in FY25 as well and may even be closer to Rs 2.1 trillion," said the research report.

RBI reported a 141 per cent rise in its net income last fiscal, paving the way for the announcement of a record dividend.

Further, the firm dividend payout is expected to help the government achieve its fiscal deficit target of 5.1 per cent of GDP in 2024-25.

The government, under its fiscal glide path, aims to reduce the fiscal deficit to 4.5 per cent by 2025-26.

The Interim Budget for 2024-25 tabled in Parliament on February 1 pegged the fiscal deficit target at 5.1 per cent.

In 2023-24, the government had pegged the fiscal deficit target for 2023-24 at 5.9 per cent of gross domestic product (GDP). Fiscal deficit data for 2023-24 is expected to be released later today.

The difference between total revenue and total expenditure of the government is termed a fiscal deficit. It is an indication of the total borrowings that may be needed by the government.

"Higher dividend payments might continue in 2024-25 also indicating adherence to fiscal glide path of 4.5 per cent by 2025-26," said the SBI Research report.