Govt wants Rs 100 bn interim dividend from RBI for fiscal deficit target

Reserve Bank had paid the same amount last financial year

The government is asking the Reserve Bank of India for at least Rs100 billion in interim dividend for 2018-19 as it looks to meet a tough fiscal deficit target in the face of possible goods and services tax (GST) shortfall and additional expenditure commitments. 

Incidentally, Rs 100 billion is the amount that the central bank had transferred as interim dividend for the government’s 2017-18 fiscal year as well. “The government is seeking from the Reserve Bank of India (RBI) roughly the same amount in interim dividend as it paid in the last fiscal,” said a senior government source. Another official said the government was hopeful of securing the interim dividend before March 31. 

The RBI follows a July-June fiscal year. Any interim dividend the RBI pays now will be part of its July 2018-June 2019 financial year. For July 2017-June 2018, the RBI paid Rs 500 billion as dividend, of which Rs 100 billion was transferred to the government on March 27, a few days before fiscal year 2017-18 ended. 

On Wednesday, Economic Affairs Secretary Subhash Garg had said the government will ask the central bank for an interim dividend. That itself came a day after Finance Minister Arun Jaitley had said the Narendra Modi administration does not need the RBI’s money to bridge any fiscal gap. 

On Tuesday, the finance minister had said at an event, which was organised by a news channel, that the government did not need the RBI’s money to maintain its fiscal deficit.  

MONEY MATTERS

•  The RBI had paid the government Rs 100 billion in FY19 as well
• The government is hoping to get the interim dividend before March
• Any interim dividend paid now will be part of July 2018-June 2019 period

“It could be used to recapitalise public sector banks and help the country’s poor. The government does not use it for its own salaries. My government has the best fiscal record. Even this year, we will maintain the fiscal deficit,” he had said. 

The fiscal deficit target for 2018-19 is Rs 6.24 trillion, or 3.3 per cent of gross domestic product (GDP). For the April-October period, the fiscal deficit already crossed that budgeted estimate and stood at Rs 6.49 trillion, primarily on the back of lower tax revenue and higher capital expenditure. 

For 2018-19, officials admit that there could be a combined shortfall of Rs 700 billion-Rs 1 trillion on GST. However, the Centre’s own GST shortfall may not be more than Rs 300 billion. This would be partly balanced by the direct tax and disinvestment budgeted targets being exceeded. But there is expected to be an additional outlay in almost all subsidy heads and on social sector schemes. 

The demand for an interim dividend comes at a time when the issue of the RBI’s excess capital has been a major bone of contention between North Block and Mint Road. The RBI board has decided to set up a panel which is expected to decide on how the central bank should provision for its capital reserves and whether it should transfer a portion of that to the government. 

According to its internal calculations, the department of economic affairs feels that central bank is extremely conservative in its assessment of its capital buffers to meet market risks. The RBI calculates its capital needs based on “stressed value-at-risk” valuations, while the government wants the central bank to use just “value-at-risk”, which most other central banks use. By that model, the RBI should transfer Rs 3.6 trillion.