The Reserve Bank of India  said that it would transfer a surplus of Rs 50,000 crore to the government for the year ended June 2018, over 63 per cent more than the Rs 30,659 crore which it transferred last year.

With the RBI increasing the surplus by close to Rs 20,000 crore, the prospect of meeting the fiscal deficit target, pegged at 3.3 per cent of gross domestic product this financial year, has improved based on fiscal consolidation and budget assumptions.

The RBI had slashed the surplus last year in the wake of demonetisation as the central bank’s expenditure shot up largely because of a sharp rise in provisions and the cost of printing currency notes.

After the RBI cut the surplus last year, the government had earlier this year sought an additional Rs 13,000 crore dividend from the RBI during the financial year 2017-18 to boost its non-tax revenue and bridge the shortfall in overall tax collection.

However, the RBI declined to pay the additional amount sought by the government.

The RBI surplus forms a sizeable chunk of the revenue which the government earns under the head of ‘non-tax’, which is mainly dividends distributed by state owned firms.

For the year 2015-16, the RBI board had approved the transfer of surplus amounting to Rs 65,876 crore to the government. In 2014-15, the central bank had paid Rs 65,896 crore to the government, which came as a boon to the government in covering the deficit. The surplus transferred to the government was Rs 52,679 crore in 2013-14.

Technicalities:

The transfer of profits is provided in Section 47 of the RBI Act, which states that after making provisions for bad and doubtful debts, depreciation in assets, contribution to staff and superannuation fund and for all matters for which provisions are to be made by or under the Act or that are usually provided by bankers, the balance of the profits of the bank is required to be paid to the Centre.

The RBI’s profits essentially represents the difference of income over expenditure.

The YH Malegam committee had suggested in 2014 that the central bank can transfer its entire surplus to the government, without allocating anything to its various reserve funds, for three years because it had adequate reserve funds.

The RBI’s main source of income is interest earned on bond holdings through open market operations or purchase and sale of government securities. Following the recommendations of the Malegam committee, the RBI stopped transfers to internal reserves since its accounting year 2013-14 which is now a part of expenditure.

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