According to experts, the Reserve Bank of India's (RBI) massive Rs 2.11 trillion dividend transfer to the Centre is projected to provide the incoming administration with a fiscal buffer and significant flexibility for expenditure management. The dividend transfer well exceeds the Interim Budget's estimate of Rs 1.02 trillion for FY25, which includes dividends from both the RBI and financial institutions.
“The higher-than-expected dividend provides a fiscal cushion of 35 to 40 basis points relative to GDP. This would offset any prospective revenue losses such as disinvestment, or more crucially, make way for more spending,” said Vivek Kumar, economist, Quant Eco Research.
The government's fiscal glide path is to reduce the budget deficit to 4.5 percent of GDP by FY26. The Interim Budget, which was introduced in Parliament in February, set the fiscal deficit objective for FY25 at 5.1% of GDP. The comprehensive budget for FY25 is expected to be delivered in June or July, following the swearing-in of the new government after the upcoming general elections. The government will announce budget deficit and GDP numbers for budget Year 24 on May 31.
The higher-than-expected RBI surplus transfer will serve to strengthen the central government's resource envelope in FY25, enabling for increased spending or tighter fiscal contraction than what was planned in the Interim Budget for FY25.
“Increasing the cash available for capex would undoubtedly improve the quality of the fiscal deficit. However, the additional spending may be difficult to incur within the eight or so months left once the Final Budget is submitted 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. As a result, the overall fiscal deficit may decrease, and we may accelerate our progress along the fiscal glide path. We never know what will work next year, so the sooner we reach the 4.5% target, the better,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
Economists believe that the government may not require much borrowing due to 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 stated.
In March, the federal government announced plans to borrow 53.07 percent of its full-year objective in the first half of fiscal year 25 (April-September). The gross borrowing for the first six months of the 2019 fiscal year is Rs 7.50 trillion, out of a total borrowing target of Rs 14.13 trillion.
