This year, the amount that the Reserve Bank of India (RBI) will pay as dividend to the Central government has shrunk to half, compared to the year before's kitty - burning a deep hole in the State exchequer. The government had accounted for a dividend of Rs 74,901 crore from the RBI and other financial institutions in the Union Budget for 2017-18. Such has been the effect of demonetization that in July this year, RBI Governor Urjit Patel had told a Parliamentary panel that the central bank wasn't through with the counting of the old notes that were returned. As per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, the scrapped currency notes of Rs 500 and Rs 1,000 (as announced on November 8 last year) "shall cease to be liabilities of the RBI under section 34 of the Reserve Bank of India Act, 1934 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act".
The Reserve Bank's income comprises of earnings from foreign and domestic sources, with the major portion being contributed by interest receipts, complemented by relatively small amounts of income from discount, exchange, commission, etc. In FY16, RBI had transferred about Rs 65,876 crore. As state-run banks are unlikely to do better than a year ago and the RBI will be transferring a smaller amount, this will impact the fiscal deficit numbers.
The RBI, however, has not provided a reason for the lower dividend transfer.
This is the lowest-ever surplus transfer by the RBI to the Centre since 2011-12 when it transferred Rs. 16,010 crore. "I think one reason is the cost of seigniorage, - which is higher the more the RBI printed notes".
"First quarter direct tax collections if continued in the fiscal will provide some buffer for central government deficit", he said.
The government on November 8 previous year demonetised old Rs 500 and Rs 1,000 currency notes as part of efforts to fight corruption and the black money menace.
Direct tax collection has registered a steady growth of 19.1 per cent in the first four months of the current fiscal to Rs 1.90 lakh crore.