The Reserve Bank of India (RBI) transferred a record ₹2,10,874 crore as surplus to the Union government for the accounting year 2023-24.
This amount is more than double the ₹87,416 crore transferred in the previous fiscal year, FY23.
The surplus transfer was determined based on the Economic Capital Framework (ECF) adopted by the RBI on August 26, 2019.
The ECF was developed based on recommendations from the Expert Committee to Review the extant Economic Capital Framework of the RBI.
Windfall profits are large, unexpected gains resulting from lucky circumstances
The higher surplus was due to increased income from the RBI's domestic and foreign assets.
This higher income resulted in greater profits booked by the RBI, which in turn raised the quantum of the surplus transferred.
Contingent Risk Buffer (CRB):
The RBI's Board also decided to increase the Contingent Risk Buffer (CRB) to 6.50% for 2023-24, up from 6% in the previous year.
The contingency risk buffer is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies.
These unforeseen contingencies could include depreciation of securities values, risks from monetary rate policy changes, systemic risks to the system, etc.
Fiscal Consolidation:
The transfer of surplus is seen as a positive step towards fiscal consolidation.
Fiscal consolidation refers to policies aimed at reducing government deficits and debt accumulation.
The substantial surplus transfer provides the government with additional funds, potentially reducing the need for borrowing and helping to manage the fiscal deficit.
Expert Opinions:
Shreya Sodhani, Regional Economist at Barclays, indicated that the fiscal consolidation program is on track and the larger dividend was a result of higher RBI income from both domestic and foreign assets.
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