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The Reserve Bank of India’s (RBI) decision to transfer an unprecedented Rs 2.69 lakh crore as surplus to the central government for FY25 could significantly strengthen India’s fiscal position.

According to a recent analysis by the State Bank of India (SBI), this record payout has the potential to reduce the country’s fiscal deficit by 20 to 30 basis points, bringing it down from the budgeted 4.5 per cent to around 4.2 per cent of GDP in the upcoming financial year.

This dividend, announced after the RBI’s 616th Central Board of Directors meeting held on May 23 and chaired by Governor Sanjay Malhotra, is the highest-ever transfer by the central bank. The windfall comes at a critical time when the government is working to strike a balance between fiscal prudence and growth-led expenditure.

Stronger Fiscal Position May Lead to More Flexibility in Spending

As per the Union Budget projections for FY26, the Centre had anticipated dividend receipts of Rs 2.56 trillion from the RBI and public sector financial entities. However, the unexpected scale of the RBI’s surplus means that actual receipts are set to exceed these estimates by a considerable margin.

SBI's report highlighted the flexibility this development provides. "We expect fiscal deficit to ease by 20 to 30 bps from the budgeted level to 4.2 per cent of GDP. Alternatively, it will open up for additional spending," the bank noted. The report further underscored that this financial boost could help the government manage its borrowing costs and navigate the yield curve more effectively amid uncertain global economic conditions, reported Business Standard.

The surplus is also likely to fortify the RBI’s Contingency Risk (CR) buffer, a key component in maintaining institutional resilience and financial stability.

Liquidity Operations Boosted Central Bank Surplus

The SBI report attributed the historic dividend primarily to the RBI’s effective use of its liquidity adjustment facility (LAF), along with income from its holdings in both domestic and international securities.

From June 3 to December 13, 2024, the central bank predominantly absorbed excess liquidity from the system—a reflection of surplus cash with banks. This stance shifted in mid-December, when the RBI transitioned to injecting liquidity, a policy it maintained until March 2025.

By the end of March, the liquidity situation had reversed again, with the system showing a surplus of Rs 1.2 trillion. Between December 16 and March 28, average liquidity deficit was pegged at Rs 1.7 trillion, highlighting the central bank’s dynamic approach in stabilising the money market.

Outlook: Ample Liquidity May Continue Through FY26

Looking ahead, SBI expects the system to remain flush with durable liquidity well into FY26. Factors contributing to this projection include the likelihood of further open market operation (OMO) purchases, the hefty RBI dividend transfer, and a projected balance of payments (BoP) surplus in the range of $25–30 billion.

SBI concluded that the confluence of a favourable liquidity environment and substantial dividend inflows offers the government a unique window to fast-track fiscal consolidation or boost development-oriented expenditure without compromising its budgetary goals.