Although the dividend fell slightly short of market expectations, it still provides a significant boost to the government’s budget.
The Reserve Bank of India (RBI) has announced a record-breaking Rs 2.69 lakh crore dividend to be given to the central government for the financial year 2024-25. This is a big jump of 27% compared to the Rs 2.11 lakh crore dividend given last year. However, some experts had expected the number to be even higher -- close to Rs 3 lakh crore.
This dividend decision was taken at the RBI’s board meeting held on Friday. The RBI also approved its annual financial report for the year.
The dividend amount is decided based on a revised policy called the Economic Capital Framework (ECF). Under this new framework, RBI has increased its contingency reserve — a kind of emergency fund— from the earlier 5.5–6.5% range to a higher 6–7.5% range. Because of this higher reserve, the final dividend turned out to be smaller than what the markets were hoping for.
Murthy Nagarajan, Head of Fixed Income at Tata Asset Management, said the lower-than-expected dividend may disappoint the stock market in the short term. He said, “There could be some profit booking next week after the strong rally in the past 10 days.”
However, the dividend is still a major positive for the economy. A report by SBI Research said that this large payout will help the government manage its finances better.
The government had planned for Rs 2.56 lakh crore in dividend income in the Budget. The RBI’s actual payout is higher than that, giving the government more money to either spend or reduce its borrowing.
According to SBI, the extra money could lower the fiscal deficit by 0.2% to 4.2% of GDP, or allow the government to spend an additional Rs 70,000 crore on welfare or infrastructure.
In short, while the dividend was a bit below market hopes, it is still a major boost for the government’s budget. The stock market might react cautiously in the coming week, but from an economic point of view, this is good news for growth and spending. All eyes will now be on how the government uses this extra money.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
This dividend decision was taken at the RBI’s board meeting held on Friday. The RBI also approved its annual financial report for the year.
The dividend amount is decided based on a revised policy called the Economic Capital Framework (ECF). Under this new framework, RBI has increased its contingency reserve — a kind of emergency fund— from the earlier 5.5–6.5% range to a higher 6–7.5% range. Because of this higher reserve, the final dividend turned out to be smaller than what the markets were hoping for.
Murthy Nagarajan, Head of Fixed Income at Tata Asset Management, said the lower-than-expected dividend may disappoint the stock market in the short term. He said, “There could be some profit booking next week after the strong rally in the past 10 days.”
However, the dividend is still a major positive for the economy. A report by SBI Research said that this large payout will help the government manage its finances better.
The government had planned for Rs 2.56 lakh crore in dividend income in the Budget. The RBI’s actual payout is higher than that, giving the government more money to either spend or reduce its borrowing.
According to SBI, the extra money could lower the fiscal deficit by 0.2% to 4.2% of GDP, or allow the government to spend an additional Rs 70,000 crore on welfare or infrastructure.
In short, while the dividend was a bit below market hopes, it is still a major boost for the government’s budget. The stock market might react cautiously in the coming week, but from an economic point of view, this is good news for growth and spending. All eyes will now be on how the government uses this extra money.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
