The Reserve Bank of India (RBI) has witnessed a remarkable surge in its gold holdings, according to its annual report for the financial year (FY23). Despite a 24% drop in gold imports during the same period, the RBI’s gold reserves have increased due to the addition of 28.94 metric tonnes and the depreciation of the Indian rupee against the US dollar. This increase in value has resulted in 2.5 times higher dividends being paid to the Government of India. In this article, we delve into the details revealed in the RBI’s annual report, shedding light on its gold holdings and their impact.

RBI’s Increasing Gold Holdings:

While higher gold prices have curbed gold imports, the RBI’s annual report reveals that the central bank has augmented its bullion holdings during the previous financial year. As of March 31, 2023, the RBI held a total of 794.63 metric tonnes of gold, compared to 760.42 metric tonnes in the previous year. This signifies an additional acquisition of 34.21 metric tonnes of gold.

The annual report highlights that out of the total gold held, 301.09 metric tonnes serve as backing for currency notes, as compared to 295.82 metric tonnes in the previous year. Additionally, the RBI’s Banking Department held 493.54 metric tonnes of gold as an asset, showing growth from the previous financial year’s 464.60 metric tonnes.

Rise in Gold Value and Balance Sheet Impact:

The value of gold, including gold deposits, held by the RBI’s Banking Department witnessed a notable increase of 17.20%, amounting to ₹2,30,733.95 crore on March 31, 2023, up from ₹1,96,864.38 crore on March 31, 2022. This surge can be attributed to the addition of 28.94 metric tonnes of gold, along with the overall increase in gold prices and the depreciation of the Indian rupee against the US dollar.

Furthermore, the rise in RBI’s gold holdings and the increased value of gold have expanded its balance sheet. As per the annual report, the balance sheet size grew by ₹1,54,453.97 crore (+2.50%) from ₹61,90,302.27 crore in March 2022 to ₹63,44,756.24 crore on March 31, 2023. This growth on the asset side is primarily driven by an increase in foreign investments, gold, and loans and advances by 2.31%, 15.30%, and 38.33%, respectively.

Higher Dividends and Fiscal Implications:

The bumper income from foreign exchange sales and higher interest income on domestic and foreign securities holdings have enabled the RBI to pay higher dividends to the Government of India than anticipated. The RBI’s annual report reveals that the dividend paid amounted to ₹874 billion (~0.3% of GDP), surpassing the initial estimate of ₹350 billion in the FY24 budget.

Analysts attribute the surge in the RBI’s income to profits from foreign exchange sales, reflecting its active intervention in the forex market and the higher interest income generated from its holdings of domestic and foreign securities. These gains have offset losses incurred in liquidity operations.

Earlier reports had predicted that the RBI would pay dividends to the Government of India amounting to ₹95,000 crore, which is 2.5 times higher than the budget estimates. However, economists caution that despite these windfall gains, there is still a risk of the fiscal deficit exceeding 5.9% of GDP. They highlight various factors contributing to this concern, including the potential undershoot of nominal GDP growth, lower tax buoyancy, a tight budget for revenue expenditure, and ambitious capital expenditure targets.

In conclusion, the RBI’s annual report reveals a significant increase in its gold holdings, driven by additional gold acquisitions and currency depreciation. This surge in value has not only expanded the RBI’s balance sheet but has also enabled higher dividends to be paid to the Government of India. The report sheds light on the dynamics behind the RBI’s income sources and their implications for the fiscal deficit. Staying informed about these developments is crucial for understanding the financial landscape and its impact on the economy.