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RBI Annual Report for 2020-21: ‘Fall in provisions, sharp forex gains led to higher RBI surplus’ – The Indian Express

The foreign exchange transactions of the central bank have come as a saviour for the government even as the Covid pandemic continues to rage across the country. The Reserve Bank of India (RBI) has been able to transfer a higher amount to the government as surplus this year following a sharp fall in provisions and gains from foreign exchange transactions during the year ended March 2021.

The central bank’s gain from foreign exchange transactions rose from Rs 29,993 crore to Rs 50,629 crore in 2020-21. A good chunk of the money transferred to the government was profit from the sale of dollars during the last three months of FY21 — $25.94 billion in March, $24.57 billion in February and $15.37 billion in January. Last year, RBI dollar sales were just $8.03 billion in March and $1.46 billion in February.

The RBI last week decided to transfer a higher amount of Rs 99,122 crore to the government despite the year FY21 being a nine-month period as against Rs 57,127 crore in the previous 12-month period. The RBI move, which is likely to boost the government’s finances, comes at a time when the real economy indicators moderated through April-May 2021 as the second wave of Covid-19 took a heavy toll. “While the economy has not moderated to the extent during the first wave, the surrounding uncertainties can act as a deterrent in the immediate period,” RBI said in its Annual Report for 2020-21, while expecting a 10.5 per cent growth in 2021-22.

Explained

Profit from sale of dollars

A good chunk of the money transferred to the government was profit from sale of dollars in last 3 months of FY21 — $25.94 billion in March, $24.57 billion in February and $15.37 billion in January.

Going ahead, as the vaccination drive picks up and cases of infections fall, a sharp turnaround in growth is likely, supported by strong favourable base effects, it said. “In the midst of the second wave as 2021-22 commences, pervasive despair is being lifted by cautious optimism built up by vaccination drives,” the central bank said.

The central bank said the rupee gained by 3.5 per cent (based on USD/rupee closing rates as at end-March 2021 over end-March 2020) but underperformed vis-a-vis its Asian peers during 2020-21. In Q4 of 2020-21, while the Indian rupee remained supported by foreign portfolio flows and merchant-related inflows, aiding the RBI to sell dollars at a gain, dollar purchases almost matched sales.

Under Section 47 of the RBI Act, 1934, after making provisions for bad and doubtful debts, depreciation in assets, contribution to staff and superannuation funds and for all matters for which provisions are to be made by or under the Act or that are usually provided by bankers, the balance of the profits of the Reserve Bank is required to be paid to the central government.

According to the RBI report, in India, the pace of contagion of the second wave has been alarming, stretching health infrastructure.

The onset of the second wave has triggered a raft of revisions to growth projections, with the consensus gravitating towards the Reserve Bank’s projection of 10.5 per cent for the year 2021-22 with 26.2 per cent growth in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4.

The size of the RBI balance sheet increased by 6.99 per cent from Rs 53,34,792 crore as on June 30, 2020 to Rs 57,07,669 crore as on March 31, 2021, the report said.

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