The Reserve Bank on Friday approved a handsome Rs 87,416 crore dividend payout to the central government for 2022-23, nearly triple of what it paid in the previous year. The dividend pay out was Rs 30,307 crore for accounting year 2021-22. However, it is still below the record dividend of Rs 99,122 crore it gave to the government for the 9-month period -- July 2020 to March 2021 -- when it aligned its accounting year with the financial year.
The latest payout has come for the government as a pleasant surprise --it was expecting just Rs 40,953 crore from all PSUs and RBI put together for the fiscal year 2022-23. The fiscal lifeline will help the Centre meet its expenditure commitments and revenue shortfalls. Political analysts see this as an instance of the RBI doing the bidding of the ruling political establishment.
The generous payout has been made possible by good profits made from sale of greenbacks or US dollars in the market. Seigniorage -- that is, the difference between the cost of printing a currency note or minting a coin and its face value -- normally accounts for a sizeable sliver of a central bank’s profits.
Interest income from sale of bonds in India and outside also helps fill up its coffers. In fact, all the three sources seem to have worked fortuitously in favour of the RBI. In keeping with the Bimal Jalan Committee report, which had urged RBI to transfer to contingency reserve anything between 5.5% and 6.5%, the RBI maintained the contribution to contingency reserve at 6%.
The committee was a strong votary of generous payout to the government, smug in the belief that there are no other shareholders to worry about or be taken care of. It is argued that non-tax revenues are the need of the hour.
While tourism revenue is picking up post-pandemic, it is nowhere near the collections made by small countries like Singapore and Spain. Proceeds from sale of PSUs at best could be a one-off phenomenon but that is not happening.
The government is bound to heave a sigh of relief at this serendipitous denouement as it would help contain the fiscal deficit. It is not as if tax revenue must be discouraged but what the government needs to do urgently is to de-emphasize GST and fuel taxes, both of which are regressively hurting the common man.
In other words, it has to focus more on direct taxes. Funding welfare schemes, with GST and fuel taxes, amounts to turning Robinhood taxation on its head. Anyway, the heightened dividend from RBI would help the government use it for welfare activities.
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