Bumper RBI dividend of Rs 2.11 trillion to give govt more fiscal room

The bumper Rs 2.11 trillion dividend transfer by the Reserve Bank of India (RBI) to the Centre is expected to give the next government fiscal cushion and greater elbow room for expenditure management, experts said.

The dividend transfer is well above the budgeted figure of Rs 1.02 trillion in the Interim Budget for 2024-25 (FY25), which includes dividends from both the RBI and financial institutions.

“The higher-than-expected dividend gives a fiscal cushion of 35-40 basis points as a ratio to gross domestic product (GDP). This would cover any potential revenue losses such as disinvestment, or more importantly, create room for additional spending,” said Vivek Kumar, an economist at QuantEco Research.

The government, under its fiscal glide path, aims to reduce the fiscal deficit to 4.5 per cent of GDP by 2025-26 (FY26).

The Interim Budget tabled in Parliament in February set the fiscal deficit target for FY25 at 5.1 per cent of GDP.

The full Budget for FY25 is expected to be presented in June or July, following the swearing-in of the new government.

Fiscal deficit and GDP data for 2023-24 will be released by the government on May 31.

The higher-than-budgeted RBI surplus transfer will help push the central government’s resource envelope in FY25, allowing for enhanced expenditure or a sharper fiscal consolidation than what was pencilled in the Interim Budget for FY25.

“Increasing the funds available for capital expenditure would certainly boost the quality of fiscal deficit. However, the additional spending may be difficult to incur within the eight-odd months left after the final Budget is presented and approved by Parliament,” said Aditi Nayar, chief economist, head of research and outreach at ICRA.

“The past three months have been sedentary in terms of expenditure. There are no slippages. The overall fiscal deficit may come down, and we may be moving faster on the fiscal glide path. We never know what will work next year, so the sooner we get to the 4.5 per cent target, the better,” said Madan Sabnavis, chief economist at Bank of Baroda.

Economists said that the government may not need much borrowing because of the highest-ever transfer of surplus to the government.

“This could potentially lower the government securities borrowing requirement and help guide interest rates lower,” added Kumar.

The central government in March announced plans to borrow 53.07 per cent of its full-year target in the first half (April-September) of FY25.

The gross borrowing for the first six months of the upcoming financial year (FY26) stands at Rs 7.5 trillion of the total borrowing target of Rs 14.13 trillion.