Pressure is building on the Reserve Bank of India (RBI) to pay part of its profits to the government before a crucial election due by May, providing Prime Minister Narendra Modi with cash to boost spending and voter support, while keeping the budget deficit in check.
Revenue from a goods and services tax, or GST, has for the most part fallen short of the Rs. 1-lakh-crore ($14 billion) monthly target, while income from asset sales have lagged estimates.
That leaves the government counting on its central bank to make up the shortfall via an interim dividend from unrealized profits.
Turkey’s central bank was recently called on to do the same, agreeing to pay an advance dividend to the government before local polls in March.
In India’s case, the demand on the central bank comes right in the middle of its financial year that runs from July to June, and follows a contentious battle with former Governor Urjit Patel about the institution’s autonomy.
The Reserve Bank of India keeps a tiny portion of its profit as contingency fund and transfers the majority to the government every year, which is then counted as fiscal revenue.
Typically, the RBI makes those dividend payments after it closes its books of accounts in June. Last year, it paid an interim dividend of Rs. 10,000 crore.