Govt eyes higher RBI surplus this year as Covid-19 decimates tax revenues

Data available on the RBI's website shows that, as of April 1-June 21, the RBI has purchased more than Rs 1.3 trillion in government bonds

With tax revenue shrinking owing to the pandemic, the Centre is expecting the Reserve Bank of India (RBI) to transfer a higher-than-budgeted surplus for the second year in a row.

While last fiscal year was about capital reserves and the recommendations of the Bimal Jalan panel, this year the thinking at the Centre is that since the RBI has ramped up purchases of government bonds, the interest earned on them will be transferred to the exchequer as dividend. The RBI’s website shows during April 1-June 21, the central bank purchased more than Rs 1.3 trillion in government bonds through open market operations (OMOs), and sold g-secs worth Rs 10,000 crore in the secondary market. In the same period last year, the central bank had purchased Rs 52,550 crore worth of g-secs and sold those worth Rs 10 crore.

“The RBI is buying more and more government bonds through OMOs and the Centre is paying interest on that. The interest the RBI earns will be transferred to us as dividend by the end of the year,” a senior government official told Business Standard.

“The surplus transferred could be more than what we had budgeted for,” the official added.

The pandemic, the nationwide lockdown, and the accompanying economic slowdown have severely affected revenues from direct and indirect taxes, including goods and services tax.

Revenue from divestment is also expected to be hit.

In this scenario, the Centre is looking at various non-tax revenue sources, and any surplus from the RBI will help, officials say. As reported earlier, the government is assessing the cash position of state-owned companies and will ask them to ramp up dividend payout and share buyback as much as possible.

The thinking at the Centre is that since economic activity is low, public-sector undertakings are not spending on capital expenditure as much as they had anticipated, and hence are sitting on reserves, which can be used to pay dividend and buy back shares. For 2020-21, the budgeted dividend from state-owned banks, financial institutions, and the RBI has been pegged at Rs 89,648.5 crore.

For 2019-20, the Centre had expected Rs 1.06 trillion and got Rs 1.52 trillion. Of this, a record Rs 1.23 trillion was from the RBI following the recommendations of the Bimal Jalan Committee on Economic Capital Framework. In addition to that, the RBI had transferred Rs 52,637 crore of excess provisions. That surplus transfer was almost double the previous record of Rs 65,896 crore in 2014-15. In 2018-19, the RBI transferred Rs 50,000 crore, while in 2016-17, the dividend was only Rs 30,659 crore because of demonetisation.

The Bimal Jalan committee had recommended that the RBI, at all times, should keep its “realized equity” at 5.5-6.5 per cent of the balance sheet, and the rest could be transferred to the central government.

Earlier, the Malegam Committee had suggested the entire surplus be transferred.

Since the Jalan panel’s recommendations were accepted by the RBI last year, this will be the basis of the surplus paid. According to the panel’s recommendations, the RBI is also set to change its financial year from July-June to April-March.

While this means there will be no interim dividend in July or August, the RBI is expected to decide how much surplus to pay much before March 31, 2021, when the Centre’s financial year, along with that of the central bank, will end.