Government benefits from increasing interest rates, treasury is full on !

Government benefits from increasing interest rates by RBI Dividend:

Interest Rate Hikes may have made it expensive for the common people to take loans, but the central government seems to be getting a big benefit from it. The trends that are being received from the data show that the central government is going to earn big money due to the increase in interest rates.

Government expected to get this much

A report by IDFC First Bank suggests that the government may receive a record dividend (RBI Dividend) from the Reserve Bank for the last financial year. In the report, Gaura Sengupta, India Economist of IDFC First Bank, states that the dividend that is going to be received from the Reserve Bank can be much higher than the budget estimate. The government can get 70 to 80 thousand crore rupees as dividend from the Reserve Bank for the financial year 2022-23.

budget estimate of dividend

The Government benefits from increasing interest rates had expressed an estimate in the budget that it can get Rs 48,000 crore as dividend from public sector banks and the Reserve Bank in the current financial year. In this way, the dividend expected to be received from the Reserve Bank can be almost double as compared to the budget estimate of the government. It is clear that the government is expected to make huge gains on this front.

This much increase in repo rate

The Reserve Bank gives dividend to the government according to its earnings. The Reserve Bank had started increasing the repo rate after a long time in May last year. After that till now the repo rate has been increased by 2.50 percent. Repo rate is the interest rate on the basis of which the Central Bank lends to all the commercial banks. Means the higher the repo rate, the higher the earnings of the Reserve Bank.

earnings like this

The report of IDFC First Bank states that during the last year, the Reserve Bank is expected to make strong earnings from any sources. The Central Bank has also earned good money from foreign currency trading. On the other hand, due to increase in the repo rate, the Reserve Bank has also received more money in the form of interest from domestic banks. At the same time, after increasing the repo rate and other measures to reduce cash from the banking system, commercial banks also increased borrowing from the Reserve Bank. In this way, the Reserve Bank benefited a lot, a part of which is now going to go to the government treasury in the form of dividend.

Such is the track record

Earlier in the financial year 2021-22, the Central Bank had given a dividend of Rs 30,307 crore to the Government benefits from increasing interest rates. The highest earning in the form of dividend from RBI to the central government was in the financial year 2018-19, when the central bank gave Rs 1.75 lakh crore. From there, the exchequer got Rs 99,122 crore in 2020-21, Rs 57,127 crore in 2019-20 and Rs 50 thousand crore in 2017-18 as dividend.