India May Seek Interim Dividend From RBI To Meet Fiscal Deficit Goal
India may seek an interim dividend from the Reserve Bank of India as it struggles to meet its fiscal deficit amid a shortfall in tax revenues, according to a person privy to the development.
That would be over and above the Rs 1.76-lakh-crore record payout by the central bank to the government in the ongoing financial year, the person told BloombergQuint on the condition of anonymity. The RBI’s central board had in August 2019 approved a transfer of Rs 1.23 lakh crore as dividend, and Rs 52,637 crore from its surplus capital.
This transfer was based on the recommendations of the Bimal Jalan panel set up to review RBI’s economic capital framework that had also suggested that the interim dividend may be paid only under “exceptional circumstances”.
The Finance Ministry and an RBI spokesperson have yet to respond to BloombergQuint’s emailed queries. News agency Reuters was the first to report about the government seeking the RBI’s dividend.
With India expected to grow at 5 percent—the slowest pace since 2008-09—in the current financial year, the government is of the view that the current year is an exceptional one, the person cited earlier said. The government’s expected to miss its fiscal deficit target of 3.3 percent as a shortfall in tax revenues is imminent, and the target of proceeds from divestment in state-run companies is unlikely to be met. The government has also asked its departments to cut spending by as much as Rs 2 lakh crore.
The dividend will be sought from RBI’s annual accounts of July-June 2020 financial year, the person said, adding that a decision in this regard would be taken at the next board meet of the central bank, after the Union budget.
Last year, the RBI had transferred Rs 28,000 crore as interim dividend to the government.
The government had sought an interim dividend from the RBI for the first time, in 2017-18, after it banned Rs 1,000 and Rs 500 currency notes in a bid to eradicate ‘black’ or unaccounted money from the financial system. At the time, the surplus from the central bank had halved over the previous year on the back of printing cost of new currency notes. That year, the central bank had transferred Rs 10,000 crore.