Dividend Current Affairs - 2019

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RBI to transfer Rs 28,000 crore as Interim Dividend to Government

The Reserve Bank of India (RBI) will transfer Rs 28,000 crore as interim dividend to the government. RBI had already transferred Rs 40,000 crore to the government in August 2018 and with the additional 28,000. The government would receive a total of Rs 68,000 crore from the central bank in the current fiscal.

This dividend of Rs 68000 will be the highest receipt for the government from RBI in a single financial year. It exceeds the Rs 65,896 crore the government received in FY16 and Rs 40,659 crore in FY18.

RBI follows a July-June financial year and usually distributes the dividend in August after annual accounts are finalised. RBI is providing the interim dividend for the second consecutive year. The RBI had paid Rs 10,000 crore interim dividend in March last year taking the total dividend to Rs 40,659 crore for the year.

The interim dividend by RBI will help the government to meet its revised budget estimates that include an allocation for the first-ever income transfer to farmers and to improve the fiscal position ahead of the general elections in 2019. The budget had factored in interim dividend from the RBI. In the revised estimate for FY19, the government budgeted Rs 74,140 crore from dividends and surpluses of RBI, nationalised banks and financial institutions.

Friction over Dividend

The RBI and the Central government were at loggerheads over the issue of payment of dividends. The government had calculated the profit retained by RBI toward risks and reserves in FY17 and FY18 amounting to Rs 27,380 crore and had wanted this transferred to it.

The government had asked for an interim surplus transfer as well as the amount retained by the RBI from surpluses of the previous two years.

To address the issues related to the transfer of dividend comprehensively a committee had been set up RBI under former Reserve Bank of India governor Bimal Jalan.

RBI to pay Rs. 50,000 crore dividend to Government for FY18

The Reserve Bank of India (RBI) has transferred surplus (dividend) of Rs. 50,000 crore to Government for year ended in June 2018, over 63% more than Rs 30,659 crore which it transferred in 2017.

Significance of Surplus

RBI surplus forms sizeable chunk of revenue which government earns under head of ‘non-tax’, which is mainly dividends distributed by state owned firms. With increase in RBI surplus by close to Rs 20,000 crore, Centre’s prospect of meeting fiscal deficit target (pegged at 3.3% of gross domestic product this financial year) has improved based on fiscal consolidation and budget assumptions. The transfer also gives Central Government more elbow room to infuse capital into public sector banks owned by it.

Earlier surplus transfers

Earlier in 2017, RBI had slashed surplus in the wake of demonetisation as its expenditure shot up largely because of sharp rise in provisions and cost of printing currency notes. For year 2015-16, RBI board had approved transfer of surplus amounting to Rs 65,876 crore to government. In 2014-15, it had paid Rs 65,896 crore to Government, which came as boon to Government in covering fiscal deficit target. The surplus transferred to government was Rs 52,679 crore in 2013-14.

Provisions of surplus transfer

Technically, transfer of profits of RBI is provided in Section 47 of RBI Act, 1934. It states that after making provisions for bad and doubtful debts, contribution to staff and superannuation fund, depreciation in assets and for all matters for which provisions are made by or under Act or that are usually provided by bankers, balance of profits is to be paid to Central Government. The RBI’s profits essentially represent difference of income over expenditure.

RBI’s main source of income is interest earned on bond holdings through open market operations (OMOs) or purchase and sale of government securities. Incidentally, YH Malegam committee had suggested in 2014 that RBI can transfer its entire surplus to government, without allocating anything to its various reserve funds for three years because it had adequate reserve funds.

Following recommendations of Malegam committee, RBI had stopped transfers to internal reserves since its accounting year 2013-14 which is now a part of expenditure. Moreover, Economic Surveys of FY16 and FY17 also had pressed for bigger transfer of excess capital from RBI to Central government. It also had warned that surplus transfer exercise should not undermine RBI’s independence.