Centre to get nearly Rs one lakh crore dividend boost from RBI to cushion revenue blow
NEW DELHI: The Reserve Bank of India (RBI) has decided to hand out a very generous dividend of Rs. 99,122 crore or 0.5 per cent of the GDP to the government at a time when the renewed Covid-19 onslaught has strained public finances.
The surplus transfer, which is double the amount expected from the central bank and the second highest payout on record (highest being Rs 1.76 lakh crore in FY20), will provide the fiscally-stretched government a room to provide more relief measures to alleviate the impact of fresh Covid-19 infections on the livelihood of people.
In FY22, the government has budgeted Rs 45,000 crore as dividend receipt from the central bank alone and another Rs 8,500 crore from nationalised banks and financial institutions.
This was 40 per cent less than the initial budget estimate of Rs 89,649 crore for FY21 and about 14 per cent less than the revised estimate of Rs 61,826 crore.
The upside surprise, however, could have been driven by increased returns from domestic assets.
"The RBI recently allowed itself to book profits on its forex transactions from a weighted average cost perspective. Our estimates show that this move could have helped the central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the central bank’s income for the year," said Rahul Bajoria, Chief India Economist, Barclays.
In addition, liquidity operations such as the targeted long term repo operations would also add to the central bank’s earnings.
It may also be noted that the RBI is transitioning to an April-March accounting year from FY22 and hence the latest figures aren’t really comparable.
"The board also approved the transfer of Rs. 99,122 crore as surplus to the central government for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021)," the RBI. The surplus was also decided upon after setting aside the contingency risk buffer at 5.50 per cent under the revised Economic Capital Framework recommended by the Bimal Jalan Committee.
While the dividend is welcome, it is not enough to perk up growth. Time and again finance minister Nirmala Sitharaman had said that the government would look beyond fiscal deficits to revive the struggling economy.
For FY22, the government expenditure is set at Rs 34.83 lakh crore which is barely Rs 33,000 crore over FY21 — the lowest ever increase in decades — even as it looks to maintain its high pandemic-period spending to bolster pace of economic recovery.
Revenues may come in at Rs. 16.5 lakh crore, down from government estimate of ₹17.8 lakh crore on the back of an impaired outlook for India's economic recovery in FY22. Against this backdrop, the government will still have to raise the targeted Rs.1.75 lakh crore via disinvestments to pursue its FY22 fiscal deficit target pegged at 6.8 per cent of GDP.
While presenting the Budget, Sitharaman pegged the gross market borrowing - which is also a reflection of fiscal deficit - at Rs 12 lakh crore for the ongoing financial year.
According to Aditi Nayar, chief economist, ICRA, the higher transfer will offer a buffer to absorb the losses in indirect tax revenues that are anticipated in May-June 2021, related to the impact of the now widespread localised lockdowns on the level of consumption on discretionary items and contact-intensive services.
Moreover, high commodity prices at a time when demand and pricing power are subdued would dent the margins of corporates in many sectors compressing the growth in direct tax collections, said Nayar.