Recently, the Reserve Bank of India (RBI) announced a transfer of surplus to the Union Government for the financial year 2024-25. What does 'surplus' mean in this context? How does the RBI generate it, and what is its significance for the government's fiscal policy?

RBI is mandated to transfer the surplus of profits to the government for developmental needs as per RBI Act. [Surplus] → RBI works on behalf of the government. Profits generated through Open Market Operations and other financial activities. After deducting profits/residual by the expenditure needs of the RBI the rest is provided to the government. The CRR Patel and Bimal Jalan committee have passed views on how much amount should be devolved to the government.

Generated through → Repo Operations, Open Market Operations, Profits, Other Forex market, Currency mark, and debt market operations. Significance for fiscal policy → More fiscal space of government → More spending on development projects → More economic development → Crowd in private sector investment → Capital expenditure → Crowd-in private expenditure. (5) High socio-economic improvement → better targeted policies. (6) Reduced fiscal deficit → As the surplus is not part of borrowing. (5) Improved logistics and infrastructure → Subvert logistic cost is 13-14% of GDP. GDP, however challenges remain. Usage of money for freebies, remained turn into increased revenue expenditure, rate of which is to be given. Thus, a careful assessment is needed about the allocation and usage of funds.

— AYUSH PATHAK · AIR 215