Govt seeks ~10K cr interim dividend from Reserve Bank

This is 3rd consecutive year when the Centre has made the demand

The central government has demanded ~10,000 crore as interim dividend from the Reserve Bank of India (RBI) for financial year 2019-20 (FY20) to bridge the fiscal gap, sources said. This is the third consecutive year when the government has demanded interim dividend.

This demand comes at a time when the government is falling short of its revenue targets due to dwindling tax and low disinvestment receipts. It could account for the dividend in the upcoming Union Budget on February 1.

RBI is, however, yet to take a final call on the government’s demand and might decide on this at its central board meeting scheduled for February 15 in New Delhi. Before that customary post-Budget meeting, Finance Minister Nirmala Sitharaman is expected to address the RBI’S central board.

In FY19, the RBI paid an interim dividend of ~28,000 crore to the Union government, which was also announced in the central bank’s post-budget board meeting in February 2019.

RBI last year started the practice of getting its half-yearly balance sheet audited to determine the amount of interim dividend it can give the central government.

Though a concurrent audit of its accounts is done on a quarterly basis, this was the first time a board-level statutory audit of the RBI was conducted. In a statement issued last year, the RBI had said it decided to give an interim dividend of ~28,000 crore to the Centre based on a “limited audit review.”

The practice of RBI paying interim dividend to the Centre started in FY18. At the time of finalising its annual accounts, the RBI adjusts the interim dividend amount while doling out the final dividend. Since the RBI follows a different financial accounting year – from July to June – than the central government, which follows AprilMarch as financial year, the latter has started demanding interim dividend from the central bank till the time the final balance sheet is prepared (usually in August).

To address this anomaly, an expert committee led by former RBI governor Bimal Jalan had recommended aligning RBI’S financial year with that of the government, April to March, from financial year FY21. Though it had recommended that interim dividend could be paid “only under exceptional circumstances”, it had added that this practice could be adopted “in the following years” of the RBI shifting its accounting year. This may give some space for the central government to demand an interim dividend this time (FY20 for the central government and FY21 for the RBI).

The Jalan panel’s recommendations, which framed a new economic capital framework for RBI, were accepted in August 2019. After its implementation, the RBI decided to transfer ~1.76 trillion to the central government.