Heavy dollar sale by the Reserve Bank of India (RBI) to defend the Indian rupee from falling sharply has led government to peg 10 percent higher dividend in next financial year from the central bank, than a year ago period
Government expects to receive Rs 2.56 lakh crore from the RBI and public sector banks in FY26, which was higher compared to Rs 2.35 lakh crore revised estimate in the current financial year, according to the Union Budget 2025 document. This is 10 percent more than the government received from the central bank in FY25, or in May last year, to be precise.
“RBI divided is supported by higher gross dollar sales and interest income on foreign currency assets and government securities,” said Gaura Sengupta, Economist at IDFC First Bank.
Hope for the higher dividend has emerged after the RBI has sold dollars heavily in market worth USD 195.568 billion between April and November 2024. Even after this, the central bank has continued its dollar sell in the forex market and this is evident from the reduction in the forex reserves from $654.857 billion on December 6, to $629.557 billion as on January 24.
Such heightened selling of dollars is likely to have increased the hopes for a larger bounty for the central government from the RBI. The logic is simple, like in any commercial transaction, the RBI has accumulated US dollars cheap and sold it when the price has risen.
The central bank accumulated dollars at lower exchange rate in the range of 82-83 per USD, and is selling at much higher rate in the range of 84-86 per USD.
As per RBI data, INR was trading at 82-83 against the US Dollar between April and September last year, or for the first half of the ongoing fiscal year. However, when the RBI started selling since September, INR rose further to the levels of 84 - 86 against the US dollar.
The central bank which was accumulating the dollars during April to September 2024 ended up being net sellers of the USD post October, mainly as an exercise to defend the Indian currency against USD.
In the current financial year, that is FY25, the central bank surprised the market with higher-than-expected dividend transfer to the governmentat Rs 2.11 lakh crore. This surplus was earned in FY2023-24 helped by factors such as higher income from the forex holding of the central bank, among other factors.
The central bank every year, after provisioning for bad or doubtful debt, depreciation of assets, contributions to staff and superannuation fund, and other matters, transfers the remaining surplus to the government, as required under the RBI Act.
RBI has been defending Indian rupee by intervening in the spot market to stop the free fall. This has led to Indian rupee remain least volatile currency among Asian and global peers.
On January 31, Economic Survey reiterated that Indian rupee has been performing better than other global peers like the Canadian Dollar, South Korean Won and the Brazilian Real.
In the first nine months of FY25 (up to 6 January, 2025), the INR depreciated a modest 2.9%, performing better than currencies such as the Canadian Dollar, South Korean Won and the Brazilian Real, which depreciated by 5.4%, 8.2% and 17.4% respectively during the same period, the Economic Survey said.
The survey added that one of the primary factors behind Rupee's depreciation in 2024 has been the broad-based strengthening of dollar, at a time of geopolitical tensions in the Middle East and uncertainty around the US election.
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