Economists Forecast Upswing In FY25 Fiscal Deficit, Bond Yields From Record RBI Dividend
The RBI will pay Rs 2.1 lakh crore—the highest-ever surplus—as dividend to the Union government for fiscal 2024.
A higher-than-expected transfer from the Reserve Bank of India bodes well for the government's fiscal deficit target and borrowings for the ongoing fiscal, economists said.
The RBI will pay Rs 2.1 lakh crore—the highest-ever surplus—as dividend to the Union government for fiscal 2024. The transfer is higher than budgeted by the government and beats economists' estimates. This comes despite the central bank increasing the contingency risk buffer to the upper band of 6.5% of total assets, from 6% in the financial year-ended March 2023.
Fiscal Deficit Could Be Lower By 0.3-0.4% Of GDP
"The RBI dividend of Rs 2.1 lakh crore may be on account of higher interest rates and bodes well for the fiscal deficit," Teresa John, lead economist at Nirmal Bang Institutional Equities, told NDTV Profit.
The higher surplus could be stemming from higher interest income on foreign securities, lower provisioning on mark-to-market losses on foreign securities, higher-than-expected other income or gains from FX sales, according to John. "However, we will have to wait for the RBI annual report for greater clarity," she said.
The fiscal deficit for the ongoing fiscal could be lower by about 0.3% of GDP, assuming expenditure is kept constant, John said. "In our view, the surplus may be partially used to fund slightly higher revenue expenditure—welfare schemes like MGNREGA, and partially towards fiscal consolidation."
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd., also said that the windfall could help ease fiscal deficit by 0.4% in FY25. "Scope for lower borrowing being announced in the upcoming budget will now provide significant respite to the bond markets.”
Budget 2025: Change In Fiscal Maths?
"The higher-than-budgeted RBI surplus transfer would help to boost the government's resource envelope in FY25, allowing for enhanced expenditures or a sharper fiscal consolidation than what was penciled into the interim budget for FY25," said Aditi Nayar, chief economist and head of research at ICRA.
Increasing the funds available for capex would certainly boost the quality of the fiscal deficit, she said. "However, the additional spending may be difficult to be incurred within the eight-odd months left after the final budget is presented and approved by Parliament."
