The Reserve Bank of India's decision to pay the government Rs 1.76 lakh crore in dividend for the current fiscal year is expected to help meet the fiscal deficit target and may create a space for further fiscal stimulus, according to analysts.
The RBI on Monday said its board has
decided to transfer a sum of Rs 1,76,051 crore to the government, comprising of Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions. Since the RBI has already transferred Rs 28,000 crore, the government will receive Rs 1.48 lakh crore in the current fiscal year. The decision was taken following the recommendations of the Bimal Jalan panel on Economic Capital Framework.
Most analysts expect the funds will mainly be used to offset weak tax collections, but risks of a fiscal slippage remain.
"Fiscal slippage risks remain given our estimated shortfall of around Rs 1.5 lakh crore in GST revenues (around Rs 95,0000 crore in net tax revenues). If direct taxes disappoint, too, fiscal pressures will intensify (amidst slowing growth)," said Kotak Securities.
Also Read: Here are the major recommendations of the Bimal Jalan panel
Morgan Stanley believes that the surplus will support the fiscal flexibility but a big fiscal stimulus is still a low-probability event. The government is likely to continue a calibrated response, noted the brokerage, adding that it awaits the government's follow-up measures.
According to BofAML, the RBI surplus will most likely be used to fund the Rs 70,000 crore recapitalization of PSU banks announced by finance minister Nirmala Sitharaman on Friday, meanwhile, the balance will likely be transferred to help the fiscal deficit. This, in turn, should help to reduce lending rates, while excessive fiscalisation would also cut down RBI open market operations (OMO), it added.
Motilal Oswal estimates the shortfall in gross receipts is likely to be more than Rs 1 trillion, considering the revenue run-rate in the first three months. "While fiscal spending could be better than previously expected, it will still be a challenge for the government to spend as much as budgeted for FY20," said the brokerage.
The board of RBI has accepted all the recommendations of the Bimal Jalan panel on Economic Capital Framework, and finalised the accounts for FY19 using the revised framework to determine the surplus transfer.The Jalan panel has recommended 5.5-6.5 percent as contingency reserves of RBI's total assets. This includes 5.5-4.5 percent for monetary and financial stability risks and 1 percent for credit and operational risks. Right now it is 6.8 percent. After the surplus transfer, this will come down to 5.5 percent.