RBI likely to transfer additional funds to govt this fiscal year

Lower growth forecast to add to fiscal pressure

The Reserve Bank of India (RBI) is likely to transfer additional funds to the government this fiscal year. The finance ministry has been seeking Rs 430 billion in dividends from the RBI against the Rs 306.5 billion that the central bank has already paid for 2017-18.

The additional funds would give some relief to the government as its task of reining in the fiscal deficit at 3.2 per cent of gross domestic product (GDP) became tougher due to lower economic growth in nominal terms (current prices) than was estimated in the Budget for 2017-18.

Among the revenue items in which the finance ministry stares at a potential shortfall this year are dividends from state-owned companies, banks, and the RBI. The combined target is around Rs 1.4 trillion.

An official has said that the RBI had agreed to pay an additional sum but did not elaborate what that amount could be.

The RBI had transferred Rs 131 billion to its contingency fund for its accounting year ended June 2017. The fund represents the amount set aside for meeting depreciation in the value of securities and risks arising out of monetary or exchange rate policy operations. As on June 30, the balance in the RBI’s contingency fund was Rs 2.28 trillion.

The first Advance Estimates for GDP growth in 2017-18, released on Friday, indicate that the fiscal deficit as a percentage of the nominal GDP would come in at nearly 3.3 per cent, against the target of 3.2 per cent, even if the deficit is retained at the budgeted number of Rs 5.46 trillion. 

However, with expectations of shortfall in a number of revenue items, and higher expenditure in certain categories, the fiscal deficit as a percentage of the GDP could be much higher than 3.3 per cent.

The data released by the Central Statistics Office showed that the economy was set to grow by 6.5 per cent at constant prices in 2017-18. GDP at current prices is expected to grow to Rs 166 trillion from a provisional estimate of Rs 152 trillion in 2016-17.

The government had by November run up a fiscal deficit 112 per cent of the target set out in the Budget for 2017-18. This is the highest deviation from budget estimates for the fiscal deficit in the first eight months of a fiscal year since 2008-09, the year of the global financial crisis.

The Centre has opted for borrowing Rs 500 billion this fiscal year through dated government securities over and above the budget estimate of Rs 5.8 trillion for 2017-18. However, the Centre lowered its treasury bill borrowings by Rs 612 billion. Treasury bills have no impact on the fiscal deficit, whereas gilts are used to finance the deficit.

Analysts had estimated the fiscal deficit for 2017-18 on account of the higher borrowing to be around 3.5 per cent of the GDP.  

For this year, the Centre is also staring at a tax revenue shortfall of Rs 400-500 billion and is under pressure regarding spectrum sales. While direct tax collection may see a shortfall of Rs 200 billion due to a corporate slowdown, a Rs 250-300 billion shortfall is expected in indirect tax revenue due to the goods and services tax.