Financial Daily from THE HINDU group of publications
Friday, Jul 19, 2002
RBI & Other Central Banks
Money & Banking - RBI & Other Central Banks
RBI cheers up Govt with Rs 10,300-cr dividend
NEW DELHI, July 18
FOR a third consecutive year, the Reserve Bank of India has pitched in a big way to help the Centre tide over its cash flow problems.
The RBI, which is the Government's debt manager, has decided to transfer close to Rs 10,300 crore as dividend to the Government out of its surplus profit for 2001-02 (July-June), according to the Secretary, Department of Economic Affairs (DEA), Mr C.M. Vasudev.
The dividend payout, ratified by the RBI board at its meeting in Chennai earlier this week, is almost Rs 950 crore higher than last year. In fiscal 2001-02, the RBI transferred Rs 9,350 crore as dividend from its surplus profits. The proceeds came in handy to the Centre for partially bridging the shortfall in the budgeted realisation of disinvestment receipts and tax revenues.
"The Rs 10,300 crore dividend payout made by RBI this time will improve the cash flow position of the Centre. The proceeds will be made available immediately," Mr Vasudev said. The RBI's substantial profits have been on account of improved earnings on its foreign currency assets including gold and also higher income from domestic sources. These include interest income from the bank's holding of Government securities, discount earnings on treasury bills and the commission it earns as the debt manager for the Government.
The Finance Ministry had internally budgeted a realisation of Rs 9,350 crore as dividend from the RBI for this fiscal. The amount has been factored in the budgeted estimate of Rs 18,805 crore from dividends and profits of public sector enterprises.
This is third time that the RBI has come to the Centre's rescue. However, unlike last year, the Centre's tax collections in the first quarter of the current fiscal have been buoyant, logging a 20 per cent growth over the corresponding period last year. At the same time, non-Plan expenditure interest payment has been 62 per cent higher, resulting in extra cash outgo.
Over the last decade, starting from 1999-92, the transfer of profits from the RBI to the Government has been progressively higher. Prior to that, large amounts from the profit of the bank were appropriated for crediting to various statutory funds for loans and advances for agriculture development, industrial and housing financial institutions before transferring the surplus.
RBI's payout to the Government in 1990-91 (corresponding to the Centre's fiscal year 1991-92) was a mere Rs 350 crore.
After the Centre took over the exchange risk liabilities arising out of the FCNR deposits from July 1993, transfer of additional profits from the RBI to the Government have been higher to facilitate the takeover of these liabilities and to avoid extra budgetary provisions.
The substantial transfer of surplus to the exchequer is also due to the RBI compensating the Government for the interest differential on account of conversion of special securities aggregating Rs 20,000 crore carrying a coupon rate of 4.6 per cent into marketable securities in 1997.
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