{"id":296822,"date":"2024-05-24T19:00:39","date_gmt":"2024-05-24T13:30:39","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=296822"},"modified":"2024-05-24T19:07:52","modified_gmt":"2024-05-24T13:37:52","slug":"rbi-surplus-transfer-to-government-explained-pointwise","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/rbi-surplus-transfer-to-government-explained-pointwise\/","title":{"rendered":"RBI Surplus Transfer to Government-Explained Pointwise"},"content":{"rendered":"

Recently, the Central Board of the Reserve Bank of India (RBI) approved a Rs. 2.11 lakh crore surplus or dividend transfer<\/span> to the Central Government for the accounting year 2023-24. There has been an increase in surplus transfer to the tune of 141%<\/span> over the last year’s (2022-23) dividend transfer of Rs 87,416 crore. Additionally, the contingency risk buffer<\/span> has been raised to 6.5%<\/span> from the previous 6%<\/span>.<\/p>\n

\"RBI
Source- Money Control<\/figcaption><\/figure>\n\n\n\n\n
Table of Content<\/strong><\/td>\n<\/tr>\n
What is the source of RBI surplus? What is the mechanism for transfer of surplus by RBI?\u00a0<\/a>
\nWhat are the reasons behind Increase in RBI surplus?<\/a>
\nWhat is the significance of the record RBI Surplus transfer to the Government?<\/a>
\nWhat Should be the Way Forward?<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What is the source of RBI surplus? <\/strong><\/span>What is the mechanism for transfer of surplus by RBI?\u00a0<\/strong><\/span><\/h2>\n

The RBI has a unique operational nature, which stands apart from typical banks or financial entities.<\/p>\n\n\n\n\n
Sources of Earnings of RBI<\/strong><\/td>\nExpenditures of RBI<\/strong><\/td>\n<\/tr>\n
1. Profits derived from foreign currency assets<\/span> like bonds, treasury bills and central bank deposits.
\n2. Earnings<\/span> from local, rupee-based government securities<\/span>.
\n3. Short-term based lending<\/span>
\n4. Borrowing management<\/span> for both central and state governments
\n5. Regulation of banks and non-banking<\/span> financial bodies.
\n6. Commission from overseeing government transactions<\/span> and specific underwriting endeavours.<\/td>\n		1. Operating Expenses<\/span>
\n2. Currency Printing<\/span>
\n3. Staff remunerations<\/span>
\n4. Transaction commissions<\/span> for Banks
\n5. Dealer Compensations<\/span>
\n6. Interest Paid on Deposits<\/span> and Borrowings<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Surplus-<\/strong> Net income derived from the total income<\/span> (sources of income<\/span>) minus<\/span> total expenditure (expenses). Out of the Surplus<\/span> of RBI, risk provisioning<\/span> is made for monetary and financial stability risks, and credit and operational Risks.<\/p>\n

Transfer of Surplus-<\/strong> RBI transfers its surplus to the government as per Section 47 of the Reserve Bank of India Act<\/span>, 1934<\/span>.<\/p>\n

The surplus calculation is based on the Economic Capital Framework<\/span> (ECF<\/span>) recommended by the Bimal Jalan committee<\/span>. The c, advised the RBI to maintain a Contingent Risk Buffer<\/span> (CRB<\/span>) between 5.5% and 6.5% of its balance sheet<\/span>.<\/p>\n\n\n\n
Read More- Economic Capital Framework<\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/a>What are the reasons behind Increase in RBI surplus?<\/strong><\/span><\/h2>\n

1. High profits from US treasury Bonds- <\/strong>According to data from the US Department of the Treasury, as of March 31, 2024, the RBI has invested $240.6 billion in US Treasuries<\/span>. The high yields on these bonds<\/span>, due to monetary policy tightening, have resulted in substantial interest income for the RBI<\/span> from foreign assets.<\/p>\n

2. Surge in Forex Holdings of RBI-<\/strong> The sharp jump in the surplus amount can also be attributed to higher income from the forex holdings of the central bank. For ex-<\/strong> In FY24, the RBI\u2019s foreign exchange<\/span> (forex) reserves surged by $68 billion<\/span>, which is the highest in five years.<\/p>\n

3. Higher earnings from interest-<\/strong> The shifting of domestic liquidity into deficit mode has contributed to the central bank\u2019s higher income<\/span>. When liquidity enters deficit, the RBI lends to banks, earning interest.<\/p>\n

4. Increase in Gold Prices-<\/strong> The increase in the price of gold has also added to the overall expansion<\/span> of the RBI balance sheet.<\/p>\n

5. Intervention in forex market-<\/strong> RBI’s intervention in the forex market has contributed to the higher incomes. For ex-<\/strong> RBI sold securities worth $153 bn in the forex market in FY 24<\/span>.<\/p>\n

<\/a>What is the significance of the record RBI Surplus transfer to the Government?<\/strong><\/span><\/h2>\n

The record RBI surplus transfer of Rs. 2.11 lakh crore has provided fiscal boost to the government. This surplus is significant for the following reasons<\/p>\n

1. Increased Capital Expenditure (CAPEX)-<\/strong> The surplus transfer provides much needed fiscal stimulus to the government to increase its allocations to roads, railways, and defence projects.<\/p>\n

2. Reduced borrowing and Fiscal Consolidation-<\/strong> The stimulus transfer provides the government with a fiscal space of 0.3% of GDP<\/span>. This would help in reducing the borrowing and maintaining fiscal discipline. It would ensure fiscal deficit reduction remains in sync with the committed glide path of 4.5% by FY26.<\/p>\n

3. Boost to Bond markets-<\/strong> The government has raised hopes among the bond traders<\/span>, as it would lead to correction in the yield of government securities.<\/p>\n

4. Meeting the revenue shortfall-<\/strong> The latest dividend payout from the RBI will be instrumental in compensating for any slippages in tax revenue.<\/span><\/p>\n

5. Covering the disinvestment target-<\/strong> The Govt has set an ambitious divestment target of \u20b950,000 crore for FY25. It is about 67% higher than the revised target for FY24. However, the govt has missed the target for the past few years. The surplus provides a safety revenue cover to the government in case of any potential miss this year.<\/span><\/span><\/p>\n

<\/a>What Should be the Way Forward?<\/strong><\/span><\/h2>\n

1. Absorption of excessive liquidity-<\/strong> RBI must absorb the excessive liquidity generated by the surplus transfer by undertaking open market operation sales and foreign exchange interventions<\/span>.<\/p>\n

2. Increasing Govt tax-GDP Ratio-<\/strong> The government must not constantly depend upon transfers from the central bank or dividend from public-sector enterprises<\/span>. Proper fiscal management must be undertaken to increase the government’s tax-to-GDP ratio.<\/span><\/p>\n

3. Rationalisation of GST rates-<\/strong> The government must immediately initiate work on rationalising the rates and slabs of GST in the GST Council to increase government’s tax revenues.<\/p>\n

4. Disinvestment in public sector-<\/strong> The government must aim to fast track the disinvestment plan of the public sector to meet any revenue shortfall in future.<\/p>\n

The immediate effect of the RBI transfer will be to simplify the fiscal maths for the Ministry of Finance. However, the longer-term priorities of the RBI will remain the same.<\/p>\n\n\n\n
Read More- The Indian Express<\/a>
\nUPSC Syllabus- GS 3- Indian Economy<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

Recently, the Central Board of the Reserve Bank of India (RBI) approved a Rs. 2.11 lakh crore surplus or dividend transfer to the Central Government for the accounting year 2023-24. There has been an increase in surplus transfer to the tune of 141% over the last year’s (2022-23) dividend transfer of Rs 87,416 crore. Additionally,… Continue reading RBI Surplus Transfer to Government-Explained Pointwise<\/span><\/a><\/p>\n","protected":false},"author":10357,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,1],"tags":[],"class_list":["post-296822","post","type-post","status-publish","format-standard","hentry","category-7-pm","category-uncategorized","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/296822","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10357"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=296822"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/296822\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=296822"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=296822"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=296822"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}