A Strong RBI Dividend Could Generate an Additional Rs 70,000 Crore in Fiscal Space
RBI’s Historic Dividend Paves Way for Increased Fiscal Space in FY26
The Reserve Bank of India (RBI) has announced a record dividend of Rs 2.69 lakh crore, exceeding expectations by around Rs 50,000 crore. This surplus could potentially create an additional fiscal space of Rs 70,000 crore in FY26, which could help in reducing the fiscal deficit or boosting government spending. The RBI’s dividend, primarily driven by forex gains and interest income, provides a 20 bps buffer to the GDP, thereby strengthening India’s fiscal position.
With the inclusion of dividends from public sector financial institutions, the total surplus in FY26 could exceed the budget target by approximately Rs 70,000 crore. The RBI’s dividend has been a significant source of non-tax revenues for the Centre, with its share rising from 10.6% in FY23 to 46.1% in FY26. In the previous fiscal year, the RBI had paid a dividend of Rs 2.1 lakh crore, surpassing the budget estimate and enabling the Centre to revise down the fiscal deficit to 4.8% of GDP from 4.9%.
It is anticipated that the fiscal deficit in FY26 could ease by 20 bps from the budgeted level to 4.2% of GDP. Alternatively, the surplus could facilitate additional spending of around Rs 70,000 crore, assuming other factors remain unchanged. The Centre aims to lower the fiscal deficit to 4.4% of GDP in FY26 from the revised estimate of 4.8% in FY25.
This surplus payout is attributed to robust gross dollar sales, higher forex gains, and steady increases in interest income. Additionally, the upward revision in the FY25 nominal GDP number suggests that the fiscal deficit-to-GDP ratio can be contained at 4.4% in FY26, even with a lower growth rate. This surplus could provide a buffer to compensate for any revenue shortfall or higher than budgeted expenditures.
The RBI Governor has indicated the possibility of a rate cut, mentioning that reciprocal tariffs pose a moderate risk. The Central Board of RBI has decided to increase the Contingent Risk Buffer to 7.5% of the RBI’s balance sheet, aiming for a prudent risk provisioning approach.
