S&P BSE Sensex jumped 1.6% on May 23, 2024 driven by RBI’s highest ever dividend transfer to the Central Government. The Reserve Bank of India (RBI) in its 608th meeting of its Central Board of Directors approved the transfer of Rs 2,10,874 crore as surplus to the Central Government for the accounting year 2023-24. While the analysts and financial pundits have started debating on the pros and cons of the dividend bonanza, received by the Central Government, the markets are happy. And there are valid reasons for the market celebration. An increase in government funds will help in reducing the fiscal deficit which is estimated to be at 5.1% of gross domestic product (GDP) in 2024-25. Higher dividend transfer by the RBI will also support government resources for capital spending and welfare programs. And also lower government dependence on market borrowings to the tune of Rs 2.1 Lakh crore leading to lower borrowing costs auguring well for corporate India.
Indian sovereign bonds resilient and insulated from global volatility supported by declining government borrowings, increasing demand due to global bond index inclusion and a stable rupee over the past few months are witnessing yield downtrend over the past 7-8 months. The yield on the 10-year Indian benchmark government security (G-sec) closed at 7.08% on May 15, 2024, softening from 7.18% on April 15 and fell below 7% after the RBI dividend transfer press release.
RBI has been able to transfer its highest ever dividend transfer due to strong earnings from foreign currency assets, gains accrued from dollar sales (to stabilize rupee) and increase in value of gold reserves. RBI foreign currency assets stood at $ 569 billion and gold reserves at $ 57 billion as on May 17, 2024. The foreign exchange reserves at $ 648.70 billion are also at all-time high for the RBI. While dividend transfer is always seen through the political prism, the Indian Central Bank with its adept currency management, stringent inflation control and stellar monetary stability is providing the requisite support to the fastest growing economy in the world.
