The government and the Reserve Bank of India (RBI) are in talks to explore the possibility of the central bank transferring more dividend for 2017 than it has announced, economic affairs secretary Subhash Chandra Garg said on Thursday. Earlier this month, the RBI sharply cut its annual dividend to the government to Rs 30,659 crore from Rs 58,000 crore budgeted by the Centre and about Rs 65,876 crore transferred in 2016, without citing any reason. However, analysts had said the central bank might have reckoned the high logistic cost of printing currency notes post-demonetisation and the dollars it expended to stem the rupee rally in recent months. Nevertheless, the sharp cut could potentially disrupt the government’s Budget maths, considering that it intends to stick to the fiscal deficit target of 3.2% for the current fiscal while continuing to boost expenditure to spur the economy.
With the central bank reporting the cost of printing at Rs 7,965 crore in the year through July 2017, much higher than the Rs 3,421 crore in the previous year but lower than feared by many earlier, the government might now see a greater scope of dividend transfer from the RBI. The dividend reduction by the RBI also amounted to refuting those who had pitched for unconventionally liberal use of the central bank’s “excess capital” to infuse funds into state-owned banks and help them recognise losses on bad assets and step up lending. The RBI had accumulated internal reserves of Rs 2.43 lakh crore and “unrealised gains” of Rs 6.37 lakh crore in its currency and gold revaluation accounts at the end of June 2016.
While many economists had argued for redeployment of the RBI’s capital to strengthen public sector banks’ capital base, others had pointed out that its “surplus” could not be treated as free reserves eligible for distribution and added that any utilisation of these funds would have consequences for inflation and money supply. For the Centre, the RBI’s move is indeed bad news. While the note ban hadn’t increased tax buoyancy much (direct tax collection grew 19% by July-end against 15.3% budgeted for FY18), early start of spending has kept the fiscal deficit high relative to the budget line so far. The deficit in April-June soared to nearly 81% of the Rs 5.46 lakh crore estimated for 2017-18, largely due to a steep 47% increase in spending on explicit subsidies.
The fiscal deficit in the first three months of 2016-17 was 61.1% of the annual estimate while in the corresponding period of 2015-16, it was 51.6% of the relevant target. No fresh window for deposits of banned notes Garg ruled out opening another window for depositing the banned Rs 500 and Rs 1,000 notes. He asserted that the government had expected most of the scrapped notes to be returned, in sync with the latest RBI data. The central bank revealed on Wednesday that 99% of the Rs 15.44 lakh crore demonetised currency were deposited with banks. “I think there was a clear expectation that much of it would come back. Whether all of it would come, people had different estimates and guesses. But the Centre never said that it expects any currency not to come back,” he said.
Asked about former attorney-general Mukul Rohatgi’s statement at the Supreme Court that the government had expected only `10-11 lakh crore to be returned, Garg said that was only an opinion. Even revenue secretary Hasmukh Adhia had on December 7 tweeted: “Did not make prediction that govt expects all demonetised money to come back to the system.”