Here’s What Market Veterans Made Of RBI’s Interim Dividend Payment
The dividend amount is likely to help its revised fiscal deficit target of 3.4 percent for the fiscal year 2019.
The Reserve Bank of India’s transfer of an interim dividend to the central government is “principally not great”, according to a market veteran. Others are of the view that the move is not a surprise to the market and mattered only as the central bank and the government follow different accounting periods.
The RBI will transfer an interim dividend of Rs 28,000 crore to the government of India. The payout is likely to help the government meet its revised fiscal deficit target of 3.4 percent for the ongoing financial year.
This is the second consecutive year that the RBI has transferred an interim dividend. The government typically uses dividends from state-run firms, financial institutions and the RBI to fund its additional expenditure. It has pegged such dividends at Rs 1.36 lakh crore in 2019-20. That’s a 14 percent rise from an already elevated collection of Rs 1.19 lakh crore in 2018-19.
Here’s what market veterans said on the interim dividend transfer:
‘Not A Surprise For Market’
The payout is not a surprise to the market as it was projected in the budget, said Manish Wadhawan, head of fixed income (global markets) at HSBC India. It was “possible on accounting grounds” to pay an interim dividend after the closure of half-yearly books, he said.
It doesn’t change anything in terms of fiscal deficit projections which will be met at 3.4 percent along with divestment proceeds. Also, it will not have an impact on the bond market as the total amount of budget is around Rs 28 lakh crore and within that this (dividend) amount is a minuscule Rs 28,000 crore.Manish Wadhawan, Head of Fixed Income (Global Markets), HSBC India
‘Principally Not A Great Move’
The move is principally not great as the future earnings are not accounted as borrowings on paper, said Ananth Narayan, associate professor (Finance) at SP Jain Institute of Management & Research. “The amount will not impact the bond markets,” he said.
‘New Trend, But Not Disallowed’
The practice sets a new trend, but it mattered only as the central bank and the government are following two different accounting periods, said independent market expert Neeraj Gambhir.
“This explains the kind of pressure the fiscal deficit is under currently,” he said. “Also, the revenue is not following the forecast trends and the goods and services tax collection is below targets. That hole needs to be plugged somewhere.”