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 a fiscal cushion and significant 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 FY25, which includes dividends from both the RBI and financial institutions.
“The higher-than-expected dividend gives a fiscal cushion of 35 to 40 basis points as a ratio to GDP. This would cover any potential revenue losses such as disinvestment, or more importantly, create room for additional spending,” said Vivek Kumar, economist, Quant Eco Research.
The government, under its fiscal glide path, wants to bring down the fiscal deficit to 4.5 per cent of gross domestic product (GDP) by FY26. The Interim Budget tabled in Parliament in February has set the fiscal deficit target for FY25 at 5.1 per cent of GDP. The full Budget for FY25 is anticipated to be presented in June or July, following the swearing-in of the new government after the ongoing general elections. The fiscal deficit and GDP data for FY24 will be released by the government on May 31.
The higher-than-budgeted RBI surplus transfer would help to boost the central government’s resource envelope in FY25, allowing for enhanced expenditures or sharper fiscal consolidation than what was pencilled into the Interim Budget for FY25.
“Increasing the funds available for capex would certainly boost the quality of the 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, ICRA.
“The last three months have been sedentary in terms of expenditure. There are no slippages. So 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, 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 G-sec borrowing requirement and help guide interest rates lower,” Kumar added.
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 stands at Rs 7.50 trillion, out of the total borrowing target of Rs 14.13 trillion.
First Published: May 22 2024 | 7:07 PM IST
