In News:

• The Reserve Bank of India (RBI) has approved a record dividend transfer of ?2.69 lakh crore to the Government of India for FY 2024–25.
• This amount is 27% higher than the ?2.10 lakh crore transferred in the previous year (2023–24).
• The transfer follows the Revised Economic Capital Framework (ECF), approved on May 15, 2025.

What is a Dividend in Public Finance?

• A dividend is the non-tax revenue received by the government as the sole shareholder of the RBI.
• It helps bridge the fiscal deficit.
• RBI dividend distribution is governed by the Reserve Bank of India Act, 1934.
• Unlike corporate dividends that require shareholder approval, RBI transfers are governed by policy mechanisms set by the Central Board.

Economic Capital Framework (ECF) and Risk Buffer

• The Contingent Risk Buffer (CRB) has been raised to 7.5% of the RBI’s balance sheet for FY 2024–25.
• Earlier CRB levels:
  • 5.5% (2018–22)
  • 6% (2022–23)
  • 6.5% (2023–24)
• The CRB helps ensure the RBI maintains sufficient capital to absorb financial shocks.

Reasons for Higher Surplus in 2024–25

• Robust foreign exchange (forex) sales, especially in January 2025, with RBI being the top seller among Asian central banks.
• Increased interest income from government securities and foreign investments.
• Gains from forex transactions during high market volatility.
• Forex reserves had peaked at $704 billion in September 2024, from which large volumes of dollars were sold to stabilise the rupee.

Implications for the Union Budget 2025–26

• The Budget had projected ?2.56 lakh crore as dividend income from RBI and PSUs; the actual RBI dividend itself exceeds this estimate.
• Experts expect the fiscal deficit to reduce by 20 basis points (bps) from the budgeted 4.4% to ~4.2% of GDP.
• The surplus provides a non-tax revenue cushion, helping offset shortfalls in tax or disinvestment receipts and manage additional spending.

Expert Views

• Surplus driven by prudent RBI policy, forex gains, and high interest income. CRB increase reduced the possible surplus, otherwise it could have exceeded ?3.5 lakh crore.
• The surplus equals 0.4–0.5 trillion (?40,000–?50,000 crore) or 11–14 bps of GDP, offering fiscal flexibility.
• Market expected ?3 lakh crore; disappointment due to higher risk buffer provisioning.