What dividend Means for India

The Reserve Bank of India (RBI) has announced a record-breaking dividend of ₹2.69 lakh crore to the central government for the financial year 2024-25. This amount is higher than the government’s budget estimate of ₹2.56 lakh crore, giving the country a much-needed financial boost.

The RBI transfers a portion of its profits to the government every year as a dividend. These payouts have grown significantly in recent years, helping the government fund critical projects. Here’s a look at the RBI’s dividend payments over the last five years:

YearDividend Amount (₹ Lakh Crore)
2020-21
0.99
2021-22
0.30
2022-23
0.87
2023-24
2.11
2024-252.69

Source: Various news reports and RBI statements
The dividend has jumped significantly in the last two years. The ₹2.69 lakh crore for 2024-25 is a 27.4% increase from the ₹2.11 lakh crore paid in 2023-24, showing the RBI’s growing ability to generate surplus income.

How Does the RBI Make These
Profits?

Unlike regular banks, the RBI doesn’t rely on customer deposits or loans to earn profits. Instead, it generates income through its unique role as India’s central bank. Here’s how:

  • Interest from Government Bonds: The RBI holds a large portfolio of government bonds and treasury bills. These are like IOUs from the government that pay interest. This interest forms a big chunk of the RBI’s income.

  • Foreign Exchange Reserves: The RBI manages India’s foreign currency reserves (like dollars, euros, and gold). It invests these reserves in safe foreign assets, earning interest or capital gains. In 2024-25, the RBI’s active buying and selling of foreign currency (like selling $398.71 billion worth of dollars) led to significant profits, especially as the rupee’s value fluctuated.
  • Currency Printing Fees: Every time the RBI prints money, it earns a small fee, which adds up over time.
  • Liquidity Management: The RBI conducts operations like repo auctions, where it lends money to banks at a specific interest rate. For example, in 2023-24, it earned revenue by lending to banks during tight liquidity conditions.



The Jalan Committee: Changing the Dividend Game

In 2018, the RBI set up a committee led by former Governor Bimal Jalan to decide how much of its profits should be kept as reserves and how much should be shared with the government.
This was a big deal because earlier, there were debates about whether the RBI was holding onto too much money. The Jalan Committee’s recommendations, adopted in August 2019, brought clarity to this process. Here are the key points:

  • Economic Capital Framework (ECF): The committee created a clear rulebook, called the Economic Capital Framework, to decide how much profit the RBI should transfer. This framework balances the RBI’s need to stay financially strong with the government’s need for funds.
  • Contingent Risk Buffer (CRB): The RBI must keep a reserve fund, called the Contingent Risk Buffer, to handle unexpected crises (like a financial market crash). The committee suggested maintaining this buffer between 5.5% and 6.5% of the RBI’s balance sheet. For 2024-25, the RBI increased this buffer to 7.5% to be extra cautious, yet still managed to pay a huge dividend.
  • Realised vs. Unrealised Profits: The committee separated the RBI’s profits into “realised” (actual cash earned) and “unrealised” (gains on paper, like changes in the value of foreign currency). Only realised profits are used for dividends, ensuring the RBI doesn’t give away money it might need later.
  • Regular Reviews: The committee recommended reviewing the ECF every five years to adapt to changing economic conditions. In 2025, the RBI tweaked the CRB range to 4.5%–7.5%, giving it more flexibility to manage risks and dividends.
    These rules made dividend payments more predictable and ensured the RBI remains strong while supporting the government.

Why This Dividend Matters and How It Will Be Used

The ₹2.69 lakh crore dividend is like a financial windfall for the government. It’s ₹13,000 crore more than the budgeted ₹2.56 lakh crore, creating extra “fiscal space” of about ₹70,000 crore when combined with dividends from public sector banks.

  • Reducing the Fiscal Deficit: The fiscal deficit is the gap between what the government earns and spends. For 2025-26, the government aims to reduce this deficit to 4.4% of GDP (from 4.8% in 2024-25). This extra dividend could lower it further by 0.2% of GDP, meaning less borrowing and lower interest costs.
  • Boosting Spending: The government could use the extra funds for critical areas like infrastructure (roads, railways, schools), healthcare, or education. For example, building better roads or hospitals creates jobs and improves quality of life.
  • Supporting Economic Growth: By spending on projects or reducing taxes, the government can stimulate demand in sectors like construction or manufacturing, boosting the economy. Analysts say this could help India maintain steady growth despite global challenges like trade tensions.
  • Managing Debt: India’s public debt is high (₹196 trillion for the Union government). The dividend can help manage this debt, freeing up resources for development rather than interest payments.
    In short, this dividend gives the government more room to invest in India’s future, whether it’s building better infrastructure, creating jobs, or keeping the economy stable.

A Word of Caution by experts

While this dividend is great news, some experts warn about relying too heavily on RBI profits. Aggressive foreign exchange trading to generate profits could affect the rupee’s value or the RBI’s ability to manage crises if global markets turn volatile. The government must use this money wisely to ensure long-term benefits without compromising the RBI’s financial stability.

Conclusion
The RBI’s ₹2.69 lakh crore dividend for 2024-25 is a testament to its financial strength and smart management. Guided by the Jalan Committee’s rules, the RBI has struck a balance between keeping enough reserves for safety and sharing profits with the government. For everyday Indians, this means more funds for schools, hospitals, roads, and jobs—paving the way for a stronger economy. As India navigates global challenges, this financial boost could be a game-changer, provided it’s used wisely.