Why and How RBI pays Dividend to Central Government?

Central Bank of a country is the manager of foreign exchange reserves, lender of last resort and is the helping hand to Central Management in making and managing policies of the economy. In this respect, a recent news has raised a lot of questions in the mind of general public. The update is as follows:

“Reserve Bank of India (RBI) in its 608th meeting of Central Board under the Chairmanship of Governor Sri. Shaktikant Das has announced payment of dividend of Rs. 2.11 lakh crore to Central Government.”

Now, let us discuss about why and how of such move.


RBI pays dividend to the Central Government out of its profits every year. The amount is paid so that:

  • Fiscal deficit between expenditure of income of government can be reduced.
  • Economic balance can be maintained.
  • Few Monetary needs of the government can be fulfilled.

So, now the question is why this move so much in limelight is if it is done every year. The reasoning lies behind the amount of dividend. While, in interim budget, government expected this amount to be around Rs. 1 lakh crore but the RBI actually announced giving much higher than that. This will also affect the final budget positively.


Now, let us deliberate on how RBI earns money to pay this dividend?

RBI deals in a lot of foreign exchange transactions and earns brokerage on the same. Plus the profits earned in trading of foreign exchange is also utilized. In addition to this, RBI has following sources of income:

  • Gain on Sale, Purchase of government bonds.
  • Printing of new currency.
  • Bank Rate and Repo Rate charged from banks.

It is expected that this additional dividend income of government will definitely boost economic growth of the country. Now, the question lies on how usefully government is going to use these funds.

Bhavya Taneja
Bhavya Taneja
Bhavya Taneja is a Practicing Company Secretary, speaker on various academic and non-academic topics and a writer. She has an experience of 8 years as a professional and 5 years as a faculty of Economics. She has authored a book of quotes called 'Crisp Talkings' and is actively involved in social welfare activities as well.

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