RBI’s Regular Surplus Transfers to Govt Now Worth CAG Interest?
RBI Governor and Finance Minister (Image credit X.com)
RBI with Surplus Transfer to Govt Risks Becoming Revenue Appendage of Finance Ministry
By P. SESH KUMAR
NEW DELHI, June 3, 2025 – The Reserve Bank of India (RBI) has declared a record dividend of ₹2.69 lakh crore for the financial year 2024–25 (FY25), marking a 27% increase from the ₹2.1 lakh crore transferred in FY24. Year after year, the government has been using surplus transfers from the RBI to fund revenue shortfalls. Amid the emerging pattern of government depending on the RBI surplus, one may wonder if the Comptroller and Auditor General of India (CAG) should get curious.
In a world where major central banks have stumbled under the weight of post-COVID crises, the Reserve Bank of India (RBI) has emerged as a spectacular outlier. With a record-breaking $31 billion surplus in FY 2024–25—while the US Federal Reserve clocked a $77 billion loss, the Bank of England fell $40 billion into the red, and even the European Central Bank suffered a $9 billion setback—the RBI has become a symbol of conservative brilliance.
But as applause rings out across financial corridors, a deeper, more uncomfortable question looms: Are we mistaking cash transfers for credibility, and performance for prudence? And more importantly, why has India’s national auditor—the CAG—remained largely silent in examining this increasingly critical fiscal relationship?
This is the story of a financial triumph that may mask structural risk, a central bank that must guard against becoming a fiscal crutch, and an audit institution that needs to step up before the lights dim on transparency. The tale is not just about what has been done—but also what is being left undone.
When most central banks around the world were drowning in post-pandemic aftershocks, the Reserve Bank of India was surfing a golden wave. While the Bank of England rushed to its treasury with a £40 billion indemnity slip and the US Fed groaned under the strain of high interest payouts on bloated reserves, the RBI calmly transferred ₹2.69 lakh crore—the largest ever—to the Indian government.
At first glance, it feels like a textbook case of Indian prudence triumphing over Western recklessness. But as any good auditor—or grandmother—will tell us, when something looks too good to be true, it usually is.
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RBI’s performance certainly deserves credit. Unlike Western counterparts who loaded up their books with long-term bonds during the era of ‘quantitative easing’ and are now paying the price through interest mismatches, India’s central bank avoided such traps.
Its balance sheet grew modestly, its forex reserve strategy remained nimble, and its provisioning discipline helped shore up a solid 6% contingency buffer (it is now 7.5%).
To use a real-world example, RBI behaved like the only shopkeeper in a busy market who did not borrow to expand during the boom. Now that others are defaulting, it is not only solvent but turning in profits.
But if the RBI is the sensible shopkeeper, the government has started treating it like an ATM. Year after year, it has been using surplus transfers from the RBI to fund revenue shortfalls. The ₹2.11 lakh crore (and Rs 2.69 lakh crore now declared) received in FY 2024–25 helped cover ballooning welfare bills, interest payments, and infrastructure outlays—without having to raise taxes or borrow more from markets. That might sound harmless, even efficient. But here is the catch: the RBI is not designed to be a profit-making machine, and excessive transfers risk reducing it to a revenue appendage of the Ministry of Finance.
Let us not forget, central banks exist to ensure monetary stability, manage inflation, and regulate banks—not to bankroll governments. When their profits are celebrated more than their prudence, priorities quietly begin to shift.
Over time, RBI may feel nudged to tweak accounting norms, delay provisioning, or alter risk assumptions—all in the name of delivering “expected” surpluses. In short, what begins as a dividend can easily slide into dependency.
Yet, while this drama unfolds, one institution remains curiously quiet: the Comptroller and Auditor General (CAG) of India. Legally, the CAG does not audit the RBI directly. RBI selects its own statutory auditors from an approved panel. But that does not mean the CAG is a mute spectator.
On the contrary, every rupee that flows from RBI to the Government of India enters the Consolidated Fund of India (CFI)—and the moment it does, it becomes the constitutional responsibility of the CAG to audit it.
To put it simply: even if the CAG cannot audit how the RBI lays its golden eggs, it must absolutely audit what happens to those eggs once they enter the government’s basket, and in the process, examine the issue comprehensively and holistically.
Over the last five years, RBI’s transfers have skyrocketed—from ₹28,000 crore in FY 2017–18 to over ₹2.69 lakh crore now. That is more than a sevenfold jump. And yet, we have no published audit analysis of the trends, no examination of changes in surplus calculation methodologies, no assurance to Parliament that these transfers are sustainable or prudent.
One must ask: why has the watchdog not barked?
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The CAG is constitutionally empowered to audit all receipts into and expenditures from the Consolidated Fund of India (CFI). Should that not include the huge surpluses transferred by the RBI to the government every year? Once RBI’s profits hit the government’s books—as non-tax revenue under the head “Dividend and Profits”—they enter the constitutional audit domain of the CAG.
In fact, Section 16 of the CAG’s DPC Act gives CAG the mandate to audit accounts relating to debt, deposits, advances, and all receipts of the Government of India.
This creates a compelling basis for CAG to go upstream and ask: What is the basis of these surplus calculations? Are the receipts bona fide and independently verified?
Were there any changes in RBI’s accounting or provisioning policy that inflated surpluses? Have government fiscal targets begun to rely unduly on such transfers—especially post the Bimal Jalan Committee’s recommendations?
In short, while CAG may not legally or technically audit the RBI’s internal accounts, it has every reason—and obligation—to audit the system and mechanism through which RBI’s surplus is computed, approved, transferred, and booked as receipts into the CFI.
To use a relatable metaphor: if the RBI is the goose laying golden eggs, the CAG doesn’t inspect the goose’s liver—but it sure as hell must verify whether the golden eggs are real, whether they are being counted properly, and whether someone is siphoning them off before they reach the treasury.
Surprisingly, this has not happened in any structured or systematic way in recent years. The last time such audit-level engagement occurred was when the CAG examined public debt management in Report no. 16 of 2016 and the fiscal-monetary interface in Report No. 11 of 2018, in both of which RBI’s role in managing borrowings was analyzed with the help of the National Institute of Public Finance and Policy (NIPFP). But surplus transfers ‘per se’ have escaped sustained audit attention.
Given the soaring quantum of transfers—from ₹28,000 crore in 2017–18 to ₹2.69 lakh crore in 2024–25—the case for a comprehensive performance-cum-compliance audit is overwhelming. Not to question the RBI’s autonomy, but to safeguard Parliament’s control over public money and ensure that fiscal integrity is not compromised by behind-the-scenes adjustments or one-off windfalls.
In fact, the CAG could reasonably undertake a system audit of the entire surplus transfer mechanism over the past five years. This would include examining:
• Changes in RBI’s provisioning norms, risk buffer policies, or accounting treatments post Bimal Jalan Committee;
• Whether any portion of the transfers represent unrealised valuation gains;
• How these transfers are factored into budgetary estimates of the Ministry of Finance;
• Whether the government is becoming structurally dependent on such non-tax revenue to bridge its fiscal deficit;
• Whether Parliamentary oversight mechanisms (like PAC) are informed adequately about the assumptions behind these receipts.
This is not merely an academic point. It affects how credible India’s fiscal math appears to investors, credit rating agencies, and even ordinary taxpayers who deserve to know whether this financial windfall is sustainable or just smoke and mirrors.
The RBI’s accounts may sit outside the direct jurisdiction of the CAG. But the moment its profits enter the Consolidated Fund of India, the public audit responsibility begins—and must be pursued without fear or favour. If the watchdog does not bark when unexpected gold pours in, one must ask—what else might it be missing?
Perhaps the CAG is wary. After all, it is uncharted territory. The RBI Act, 1934, does not explicitly empower the CAG to audit the RBI’s accounts, and historically, RBI has guarded its autonomy with pride. But that cannot be the end of the road.
The CAG, under Section 20(1) of the DPC Act, 1971, can be entrusted with a special audit by the President or by the Government of India. This is not just a technical loophole—it is a constitutional safety valve. If the Ministry of Finance, which receives the surpluses, agrees (a moot point) that the quantum, pattern, and logic of these transfers merit examination in public interest, it can formally request the CAG to conduct a performance audit or a system review of the entire surplus transfer mechanism.
The CAG, in turn, can lay down its own terms, scope, and conditions for such a review, safeguarding RBI’s autonomy while ensuring transparency.
And if even that fails? The judiciary is not powerless. Remember the Supreme Court’s landmark 2013 judgment in the Association of Unified Telecom Service Providers v. Union of India case, where it reminded the nation that “CAG is not a Munim, nor a glorified accountant”, but a constitutional authority with a duty to ensure that the nation’s resources are managed responsibly and in accordance with the law. That judgment upheld the CAG’s right to conduct audits in sectors like telecom spectrum, even when no direct receipt accrued into the CFI. In light of that, it is not far-fetched to imagine a public interest litigation (PIL) being filed before the Supreme Court or High Courts demanding that CAG undertake a special audit of the RBI surplus transfer system—given its increasing fiscal importance and lack of public accountability. With what result, is an imponderable.
Such a move would, however, not just be legally valid. It would also be morally compelling. When lakhs of crores are transferred year after year from an institution not subject to CAG audit, into the government’s accounts, with Parliament none the wiser about the internal assumptions, something foundational to India’s democratic financial architecture begins to crack.
In parallel, RBI itself must introspect. The record surplus should not lull it into complacency. Inflation management still has gaps, rural price instability persists, and core inflation remains sticky. Bank lending rates are not transmitting policy signals effectively. Financial oversight in NBFCs and cooperative banks still looks more reactive than preventive. Transparency in communication remains tightly controlled. And while RBI’s digital and climate finance roles expand, its public engagement is still largely elite and inaccessible to the common citizen.
It is time for a reset—both inside the RBI and outside it.
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RBI must focus on credibility over cash, resilience over revenue. And the CAG must rise to the occasion and reclaim its rightful place in safeguarding fiscal accountability. Together, they must ensure that what looks like a golden age is not just a glittering illusion.
The RBI’s $31 billion surplus may be the headline. But the real story lies in what we are not asking. Can fiscal policy become addicted to monetary profits? Can central bank independence be preserved in an era of record transfers? And where is the audit trail that links public money to public interest?
This is not just a moment simply to celebrate institutional performance. It is a moment to question institutional silence. The RBI has done its bit—prudently or luckily, perhaps both. But it is time for the CAG to do its part. Whether through government entrustment under the DPC Act or a nudge from the higher judiciary, this audit must be undertaken—for Parliament, for taxpayers, and for the legacy of independent oversight in a constitutional democracy.
Because if the golden eggs are not examined now, we may not know until it is too late that the goose was overfed, overburdened—or quietly broken.
(This is an opinion piece; views expressed solely belong to the author)
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