Govt may seek Rs 30,000 cr interim dividend from RBI: Even then, Nirmala Sitharaman may have to give 3.3% deficit target a miss

  • Going by the RBI financial year, in FY 19, the government got a transfer of Rs 1.76 lakh crore from the central bank

  • As against a 17.5 percent target budgeted for the full year, the government could mop up only 4.7% more so far

  • Beyond the RBI dividend and reserves under ECF transfer, govt can dip into small savings and disinvestment route to raise money to meet deficit

The government may seek an interim dividend of Rs 30,000 crore to meet its fiscal deficit target of 3.3 percent of the Gross Domestic Product (GDP) for the year 2019-20, reported PTI. The Reserve Bank of India (RBI) and government follow different financial years. The RBI follows a July to June financial year unlike April to March by government.

Going by the RBI financial year, in FY 19, the government got a transfer of Rs 1.76 lakh crore from the central bank including the money under the revised Economic Capital Framework (ECF) mooted by the Bimal Jalan panel. Of the Rs 1,76,051 crore, comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised ECF. Out of the net income of Rs 1,23,414 crore for the year 2018-19, the RBI had already transferred Rs 28,000 crore to the government as interim dividend in March 2019.

 Govt may seek Rs 30,000 cr interim dividend from RBI: Even then, Nirmala Sitharaman may have to give 3.3% deficit target a miss

Representational image. Reuters.

Now, forget the ECF part for a moment. Going by the government financial year, April-March, this fiscal (FY20), the government has already got Rs 95,414 crore from the RBI in the form of dividend against the Budget estimate of Rs 90,000 crore. Suppose the government gets an additional Rs 30,000 crore dividend, the RBI transfer during this fiscal year will be a record Rs 1,25,414 crore. This will be the highest ever dividend transfer so far.

Over the years, the dividend transfer from the RBI to the government has grown many times (see the chart) and the utilisation of this money has been a subject of debate. Should it be used to fund the government’s fiscal mess?

But more importantly, even with the RBI money, will it be enough to manage a 3.3 percent fiscal deficit target? Let’s look at the revenue collection status till now. As against a 17.5 percent target budgeted for the full year, the government could mop up only 4.7 percent more so far, with the direct tax kitty growing to Rs 5.50 lakh crore as of 17 September, up from Rs 5.25 lakh crore a year ago. On the other hand, the government has already used 77 percent of the fiscal deficit room by July itself.

In absolute numbers, fiscal deficit crossed Rs 5,47,605 crore, against a target of Rs 7,03,760 crore for the full year. Beyond the RBI dividend and reserves under ECF transfer, the government can dip into small savings and disinvestment route to raise money to meet the deficit. But, in a slowing economy, the room is limited. On the disinvestment front, the government has managed only Rs 12,357 crore so far as against the targeted Rs 1.05 lakh crore.

The recently announced corporate tax cut would also take a toll on the revenue mop-up forcing the government to use the dividend money to bridge the widening deficit. In the backdrop of the revenue shortfall, the government will likely overshoot the borrowing target of Rs 7.04 lakh crore and the fiscal deficit figure may end up above 4 percent of the GDP against the 3.3 percent target, according to leading economists. Finance Minister Nirmala Sitharaman has an extremely tough task at hand to manage the fiscal math.

(Data support by Kishor Kadam)

Updated Date: Sep 30, 2019 15:16:32 IST