India’s government intends to push the central bank for a fiscal aid in the frame of another interim dividend, as it struggles to reach its expenditure promises amid an abrupt revenue shortfall, three sources immediately aware of the subject said.
The fresh proposal arrives just months after the RBI approved a ₹1.76 trillion dividend payment to the authority, including ₹1.48 trillion for the prevailing financial year.
The probability of the government turning to the central bank for an interim transfer got strengthened after the National Statistical Office on Tuesday clinched the predicted nominal GDP at Rs 204.4 lakh crore, cheaper than the estimated Rs 211 lakh crore. This alone will stretch the Centre’s fiscal deficit to 3.44% of GDP against the 3.34% mark, while the definite decline in revenue could add to the fiscal distress.
One of the executives said the government needs the RBI to consider its command for an interim dividend provided this financial year has been an “unusual year,” with economic growth predicted to fall to an 11-year low of 5%. The prevailing fiscal year moves to March 31.
Third-year in a row
If the RBI corresponds to the central government’s demand, then it will be the third sequential year that the government will receive an interim dividend. However, some RBI executives are debating giving this dividend to the management, as it may create problems for the central bank on various fronts. However, due to a high number of members on account of the government in the RBI board, it will not need much time to get such support.
Earlier this fiscal, the RBI gave Rs 1.48 lakh crore to the government after it received the Bimal Jalan committee support, in the biggest-ever yearly transfer from the central bank to the administration. The central bank had given Rs 28,000 crore as interim dividend from its 2018-19 fiscal reports (July-June) in February, which supported the government contain debt at 3.4% in the last fiscal.
Shaktikanta Das, who was designated RBI governor by Prime Minister Narendra Modi in late 2018 after the departure of Urjit Patel, has cut the policy repo rate five times by a sum of 135 basis points and relieved liquidity constraints to support declining economic growth.
Some RBI leaders are still unwilling to pay more funds as it could affect provisions to meet sovereign risks, sources said, but the government is expecting that the RBI board, which covers its nominees, will support the dividend.
A panel directed by former RBI governor Bimal Jalan was established up by the RBI in 2018 to suggest a formula for the splitting of its profits with the government.
The government is concerned about a financial downturn as the manufacturing business is predicted to rise only 2% compared to 6.9percent one year ago, beating tax ranges.
RBI officials are told the profits shortfall was now measured in between 34-37percent of the predicted goal, but employing all efforts might be taken down to almost 25 percent, the initial executive told Reuters.