The decision by the Reserve Bank of India’s board to transfer a record surplus of almost ₹2.11 lakh crore to the Union government for 2023-24 will serve as a welcome shot in the arm for the new government when it presents its Budget in July. More than double the previous year’s ₹87,416 crore payout as well as the ₹1.02 lakh crore dividend-cum-surplus receipts from the banking and financial system and RBI that was pencilled into the interim Union Budget for 2024-25, the transfer should give the next Finance Minister a fair bit of elbow room when computing the spending and fiscal math. The surge in transferable surplus reflects the prudent asset management approach adopted by the Indian central bank, at a time of lingering global uncertainty and widespread policy tightening by central banks worldwide seeking to restore price stability. While the specifics of the RBI’s 2023-24 balance sheet will be known in the coming days, clearly a combination of substantial gains from higher interest income earned on its holdings of overseas securities and the gains from its interventions in the foreign exchange market to smoothen volatility in the rupee’s moves must have contributed in swelling the surplus. The weekly statistical supplement shows that as on March 29, total foreign exchange reserves had increased by $67.1 billion over the course of 12 months to $645.58 billion.
The RBI’s prudence has also extended to the crucial provisioning done under the Contingent Risk Buffer (CRB), where it has raised the level of funds set aside to cover for any unforeseen contingencies and risks to the economy. By raising the level of provisioning by 50 basis points to 6.5% of its balance sheet size for 2023-24, the central bank has clearly signalled its increased confidence in the health of the domestic economy even as it strengthens the buffer against any sudden threats to stability from unexpected developments in the global financial system. For the new government that will assume office after the results of the ongoing general election are declared on June 4, the bountiful surplus transfer from the RBI will give it an opportunity to raise capital spending, especially at a time when the key engine of private consumption expenditure is still in search of sustained tailwinds. The opportunity to use some of the additional bonanza to bridge the fiscal gap can also help strengthen the government’s finances and reassure investors of its commitment to the fiscal consolidation road map. The RBI has in its own quiet way paved the path for the next government to start with confidence in the resilience of the economy.
