Economists expect India's central bank to pay a record dividend to the government, offsetting a shortfall in tax revenues due to slow growth and helping meet any emergency spending needs.

While IDFC First Bank Ltd. anticipates a dividend of approximately Rs 3 trillion for the fiscal year ending in March, Kotak Mahindra Bank Ltd. projects that the Reserve Bank of India will transfer up to Rs 3.5 trillion ($41.4 billion) to the government. The payout for the previous year was Rs 2.1 trillion.

The RBI pays the government an annual dividend from the surplus income it earns on investments and valuation changes on its dollar holdings, as well as the fees it receives for printing currency.

According to Kotak's economist Upasna Bhardwaj, the windfall will close the tax collection gap this year caused by weak growth and lower disinvestment receipts amid market volatility. "We factor in Rs 1 trillion less gross tax revenue than budgeted," she said, with asset sale receipts expected to be around Rs 400 billion lower.

The economists' dividend predictions are higher than the government's estimate of Rs 2.56 trillion from the RBI and financial institutions. The exact amount will be announced by the RBI's central board later in May.

The central bank's income is expected to rise due to increased earnings from its foreign exchange market operations.

Last fiscal year, the RBI intervened in the currency market to keep the rupee from falling dramatically against the US dollar. The RBI may also benefit from interest income on foreign and rupee securities.

According to IDFC's Gaura Sen Gupta, the higher dividend creates fiscal space ranging from 0.1% to 0.2% of GDP. The government has pledged to reduce the fiscal deficit to 4.4% in the current fiscal year.

Bhardwaj added that this space can be used to increase spending on social welfare and export promotion programs, as well as to cover any necessary defense and internal security expenses.