India can get ‘rating support’ over time if it utilises the highest-ever dividend of over Rs 2.11 trillion received from the Reserve Bank to reduce fiscal deficit, said an S&P Global Rating analyst on Thursday.
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The RBI board has decided to pay a record Rs 2.11 trillion dividend to the government for the fiscal ended March 2024, more than double of what was budgeted expectation of Rs 1.02 trillion.
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“The additional dividends from the RBI are around 0.35 per cent of GDP. Whether it would support the narrowing of the fiscal deficit in fiscal 2024-25 would really depend on the final budget that would be passed after the June election results,” S&P Global Ratings Analyst YeeFarn Phua told PTI.
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The interim budget presented in Parliament earlier in the year targets a fiscal deficit of 5.1 per cent of the GDP.
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However, “if it does lead to a full decrease of the deficit, we believe it will lead to a faster path of fiscal consolidation that, in turn, will provide rating support over time”, Phua added.
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The government expects to bring down the fiscal deficit to 5.1 per cent of GDP in the current fiscal, down from 5.8 per cent in 2023-24. As per the fiscal consolidators roadmap, the deficit — the difference between government expenditure and revenue — would be brought down to 4.5 per cent by 2025-26.
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In May last year, S&P Global Ratings affirmed India’s sovereign rating at ‘BBB-‘ with a stable outlook on growth but flagged weak fiscal performance and low GDP per capita as risks.
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‘BBB-‘ is the lowest investment grade rating.
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All three global rating agencies — Fitch, S&P and Moody’s — have the lowest investment grade rating on India with a stable outlook. The ratings are looked at by investors as a barometer of the country’s creditworthiness and impact on borrowing costs.Â
First Published: May 23 2024 | 5:50 PM IST
