Stock advisory Company << The costs and benefits of demonetization

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The Reserve Bank of India (RBI) is transferring Rs30,659 crore of its surplus to the government for the financial year 2016-17 (July-June), less than half of the Rs65,876 crore it had transferred in the previous year, and substantially lower than what the government had estimated in its budget document (Rs58,000 crore).

At least four factors have contributed to the decline in the Indian central bank’s surplus for the year and behind two of them, demonetization has played a critical role.

While the jury is still out on the long-term benefits versus short-term pains inflicted by demonetization, the sharp drop in the central bank’s dividend payout to the government is a direct fallout of the exercise. It will have an impact on the government’s fiscal deficit—the target for which during 2017-18 is pegged at 3.2% of India’s gross domestic product (GDP).