The RBI Is Not Merely Managing Currency, It Is Becoming A Fiscal Stabiliser |
A falling rupee is usually treated as a macroeconomic problem. It raises the cost of imports, worsens inflationary pressures, unsettles investors, and dents national pride. But India’s recent experience has produced a curious paradox. The same rupee weakness that creates external stress has also produced a fiscal bonanza for the Union government.
The Reserve Bank of India’s defence of the rupee—by selling dollars from its reserves—has yielded large realised profits, which are then transferred to the Centre as surplus. The RBI is, thus, not merely managing the currency; it is increasingly becoming a fiscal stabiliser, almost a treasurer to the government. This deserves more scrutiny.
The RBI Central Board has now approved a record surplus transfer of Rs 2,86,588 crore to the Union government for FY2025-26. This is higher than the previous records of Rs 2,68,590 crore in FY2024-25, Rs 2,10,874 crore in FY2023-24, and Rs 87,416 crore in FY2022-23.
The latest transfer is, reportedly, backed by robust RBI earnings, including gains from large dollar sales to support the rupee and a higher income on foreign assets.
Nearly Rs 2.9 trillion is not a rounding-off item. It is close to 8 per cent of the Centre’s revenue receipts. It gives the government fiscal breathing space without raising taxes, cutting expenditure or borrowing more from the market.
At a time of elevated crude prices, geopolitical uncertainty, and pressure on the fiscal deficit, this is a very useful cushion. But that is exactly why it is worrying. A cushion can quietly become a habit.
How rupee weakness creates fiscal gains
The arithmetic is simple. The RBI accumulated dollars over many years when the rupee was much stronger. When it sells those dollars today at a weaker exchange rate, it books a rupee gain. This is not merely a paper gain from revaluing foreign exchange reserves; it is a realised gain from actual dollar sales.
Under the economic capital framework, unrealised........