The higher dividend from the Reserve Bank of India (RBI) bank has been used equally to manage the fiscal deficit and developmental projects an analysis of the numbers indicate.
It is already known that the government revenues would get a big boost because of the RBI dividend . But the speculation over how the record RS 2.3 lakh crore bounty will be used was a point of debate when the Reserve Bank announced its dividend for 2023-24 which went to the government kitty only in 2024-24.
“The union budget has judicially utilized the fiscal space created by the RBI dividend to support twin aims of fiscal consolidation and remain growth supportive” said Gaura Sengupta, chief economist at IDFC First Bank.
To put the numbers in perspective, the RBI dividend created fiscal space of 0.4% of GDP. Out of this expenditure was increased (over interim budget) by 0.2% of GDP. The increase in expenditure is focused on supporting agriculture, employment creation and state governments. Within expenditure there is an increase in subsidies (over interim budget) by 0.1% of GDP and transfer of resources to state governments by 0.1% of GDP. Capital expenditure was retained at interim budget levels ( Rs 11.1 lakh crore ). “The remaining fiscal space was used to reduce the fis defici cal deficit by 0.2% of GDP to 4.9% of GDP” explained Sengupta. Put simply, in absolute terms the fiscal deficit will be lower by Rs 72000 crore in 2024-25 only because of the RBI dividend. This places the government’s goal of achieving a 4.5% of GDP deficit by fiscal 2025-26 within reach, according to Moody’s Ratings. The fiscal deficit is pegged at 4.9% of GDP for FY 2024-25, lower than the 5.1% of GDP announced in the interim budget.
Though the RBI dividend turned out to be a sweetener in managing the fiscal balance, there is no certainty if this trend would continue in the next fiscal as well. “While a stronger than expected dividend payout from the Reserve Bank of India has provided additional fiscal space, although future dividends will depend on market conditions” said Gene Fang, Associate Managing Director, Moody’s Ratings .
