/financial-express-hindi/media/media_files/Qb8taxRYECUKQyK3tdEa.jpg "Government deficit may be less than the target of 5.1% in FY25, hope tied to RBI’s record dividend: Fitch Ratings")
Fitch Ratings says RBI dividend can help Govt meet or even go beyond fiscal deficit target for FY25: International agency Fitch Ratings has said that the huge dividend received from the Reserve Bank of India (RBI) can not only help the Government of India in achieving the fiscal deficit target, but the government can also go beyond its target in this matter. The Reserve Bank has recently decided to give an amount of Rs 2.11 lakh crore to the Government of India as dividend from its profits. This is the biggest surplus transfer ever made by the RBI to the Government of India. Fitch Ratings says that when the government formed after the elections in India presents its new budget in July, it will become clear how the government uses this huge amount.
The picture will be clear from the budget presented after the elections
According to Fitch Ratings, the incoming government will have two options in the budget to be presented after the elections in India. The first option is to maintain the fiscal deficit target for the current financial year at the current level and use the additional funds received from the RBI to increase spending on infrastructure and to compensate for the higher-than-expected expenditure and the fall in revenue. At the same time, if the government wants, it can also choose to use the entire additional funds received from the RBI to bring down the fiscal deficit to below 5.1 percent. Which of these options the government chooses will reveal its fiscal priorities in the medium term.
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Fiscal deficit may go below 5.1% of GDP
According to Fitch Ratings, if the government uses the money received from the Reserve Bank mainly to reduce its fiscal deficit, then it can easily achieve the target of 5.1 percent of GDP set for the financial year 2024-25 (FY25). Not only this, Fitch Ratings hopes that if the government does not use this amount to increase expenditure, then the fiscal deficit in FY25 can also be limited to less than the target of 5.1. The Government of India has announced a target to reduce the fiscal deficit to 4.5 percent of GDP in the next financial year i.e. 2025-26 (FY26). In this regard, RBI’s dividend can prove to be a good opportunity to move towards that target.
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It is difficult for this level of dividend to be maintained in future
However, Fitch Ratings has also said that the huge dividend that the Reserve Bank has given to the government this time may not necessarily be maintained at the same level in the coming years. Expressing its opinion on this, Fitch Ratings has said that there is a lot of uncertainty in the medium term about how much money the government will get from the RBI and we do not believe that the dividend as a percentage of GDP will remain at the current high level. According to the agency, this transfer will be affected by the performance of RBI’s assets and the exchange rate of the rupee as well as how big a buffer the Reserve Bank wants to keep in its balance sheet. Fitch Ratings has said that RBI has not given a detailed account of its profits this time, yet it seems that the income from high interest on foreign assets has contributed a lot to it. The dividend that RBI has given to the government in the current financial year is equal to 0.6 percent of India’s GDP, whereas it was earlier estimated that RBI’s dividend would be equal to 0.3 percent of GDP. In this sense, RBI has given twice the amount to the government than expected.
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