The Reserve Bank of India’s record dividend payout of ₹2.69 lakh crore to the Centre surprised markets, not for its size but due to a sharper-than-expected increase in the central bank’s contingency buffer. The RBI raised the buffer to 7.5% of its balance sheet, up from 6%, which economists say was the key reason the dividend fell short of the ₹3-3.5 lakh crore range anticipated by the Street.Abhishek Upadhyay, Senior Economist at ICICI Securities Primary Dealership, said, “This number would have been closer to ₹3.5 lakh crore if the RBI had not increased the contingency reserve buffer by 1% to 7.5%. In market estimates, the consensus was a number around ₹3 lakh crore. To that extent, it is a modest undershoot.”
However, he added that the impact on the market or fiscal math would be limited. “It gives more confidence in the fiscal outlook and should not have significant implications from a market standpoint, given the expectations were already baked in.”
Radhika Rao, Executive Director and Senior Economist at DBS Bank, called the larger buffer “the biggest source of surprise.” She said, “Still, there is an increase vis-à-vis last year. Still, we’re at a record high. Still, there is about a 25-30% increase. And I think in terms of how much it adds to the fiscal revenue, there’s still about 30 basis points as compared to what it was budgeted for.”From a fiscal perspective, economists see the payout providing a reasonable cushion. “From ₹2.1 lakh crore moving to ₹2.69 lakh crore is definitely something which would be beneficial in these uncertain times,” said Madan Sabnavis, Chief Economist at Bank of Baroda. “If there’s any additional expenditure which has to be incurred by the government, I think that’s something also which could be absorbed very well by these things.”
Madhavi Arora, Chief Economist at Emkay Global Financial Services, noted that despite the dividend being lower than some market estimates, it still translates to roughly ₹500 billion in additional fiscal space—about 0.1% of GDP.“Our sense is that the government fiscal math would not change dramatically owing to this,” she said. “The incremental gain that they’re getting from the higher RBI dividend are actually partly offset by a possibly slower tax revenue growth… So as of now, we think the gross fiscal deficit to GDP ratio would be still at 4.4% for FY26.”The added fiscal cushion is also seen as allowing the government to sustain capital expenditure, especially on strategic heads. “This additional cushion of maybe around 0.15% of GDP allows that much more wriggle room to the government to spend some extra amount on heads, including defence capex, etc.,” said Upadhyay.In terms of monetary policy, the RBI’s stance is still seen as accommodative, with economists expecting further rate cuts despite the smaller-than-expected dividend.“The Governor did mention that just because the stance has become dovish does not mean that that’s going to be the stance on liquidity as well,” said Rao. “While they do keep liquidity in surplus, I think the reaction function in terms of cutting rates is likely to continue.”Abhishek Upadhyay added that rate cuts remain on the table. “We are thinking there is scope for two more rate cuts for a terminal policy rate of 5.5%… And the next rate cut is likely in the upcoming meeting in August itself.”Watch accompanying video for entire discussion.
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