Centre Likely To Renew Demand For Extra Dividend From RBI

The government will likely improvise its demand for Rs. 13,140 crore ($1.9 billion) in additional dividend from the central bank helmed by newly-appointed governor Shaktikanta Das, two sources in the government told Reuters. The government believes the value has been pending since 2016-17, when an internal formula called staggered surplus dividend distribution method was used without consulting the government to transfer the dividend for that year, stated one of the sources, who did not want to be named as they are not authorized to speak to the media.

“Even though RBI in 2016-17 used their own formula it had still transferred Rs. 13,140 crore less to the government in our view,” the official says. “We have been asking that amount to be given to us,” the official added.

The central bank confirmed the transfer of Rs. 50,000 crore in the dividend to the central government for this fiscal year in August. The government deposited a note to the RBI later that month pointing to the shortfall, said one of the sources who had seen it.

Each source said the finance ministry was likely to combine the amount sought for this year and the pending sum from 2016-17 when it makes a formal request next month.

The finance ministry and the RBI did not answer to requests for comment. RBI officials have in the past stated that reserves are an important measure of the central bank’s ability to withstand any major market volatility and, therefore, should not be reduced.

Critical discussions over the revamping of the economic capital framework were one of the reasons behind the sudden resignation of RBI Governor Urijit Patel earlier this month.

The government has been sparring with the RBI on deciding a fixed formula for transferring dividend to the government as it believes the central bank recently uses an “arbitrary” method.

The government wants to set a transparent formula for the transfer of the funds as the calculation of fiscal deficit and expenditures can be upset if the amount of transfer is lower-than-expected.

Delhi not only wants to have a proper dividend-sharing policy with the central bank but is also looking to revamp the whole economic capital framework as it believes the current framework is “extremely conservative.”

If the government is successful in convincing the RBI of a less conservative framework, then trillions of rupees could be freed up for government utilization, according to the second source, who also did not want to be named.

Such funds will be crucial to the Narendra Modi-led government, which will look to lure voters by giving tax rebates, increasing allocation towards rural schemes and spending on subsidies ahead of a general election that must be held by May.

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