The government will seek interim dividend from the central bank this fiscal, a senior official said on Wednesday, adding that the practice of asking for interim dividend is here to stay.
The government will seek interim dividend from the central bank this fiscal, a senior official said on Wednesday, adding that the practice of asking for interim dividend is here to stay. The economic capital framework (ECF) that governs the Reserve Bank of India’s (RBI) surplus transfer has been a sore point between the government and the central bank in recent months. Consequently, the RBI’s central board earlier this month decided to set up a committee to examine the ECF.
The Reserve Bank of India (RBI) in August announced the transfer of Rs 50,000 crore to the Centre from its 2017-18 (July-June) surplus. Given that the amount included Rs 10,000 crore transferred in March as an interim measure to aid the Centre’s effort to contain the FY18 fiscal deficit, the Centre will have only Rs 40,000 crore available for FY19, against the finance ministry’s estimate of Rs 45,000 crore. The Centre’s FY19 receipts budget includes Rs 54,817 crore as “dividend/surplus from RBI, public sector banks and financial institutions”.
The official said the government bond buybacks may touch Rs 40,000-50,000 crore this fiscal, against the budgetted Rs 71,941 crore, and that the buybacks will be funded from collections from National Small Savings Fund (NSSF). This means the Centre would borrow more than the budgetted Rs 75,000 crore from the NSSF. The official also said the interest burden to the exchequer due to the issuance of recapitalisation bonds to public sector banks would be around Rs 11,000 crore in FY19.
The government had issued recap bonds worth Rs 80,000 crore last fiscal and plans to issue a total of Rs 65,000 crore in FY19. The Centre has already announced that it will trim its gross market borrowing by Rs 70,000 crore in 2018-19 from the budgeted Rs 6.05 lakh crore, aimed at calming the bond markets. Instead, it will reduce buybacks and tap the NSSF more aggressively to finance fiscal deficit. The Centre would borrow Rs 2.47 lakh crore in the second half of this fiscal, against `2.88 lakh crore in H1. However, net borrowing will remain unchanged at Rs 3.9 lakh crore in FY19 (`2 lakh crore in H1 and Rs 1.9 lakh crore in H2).
Economic affairs secretary Subhash Chandra Garg last week asserted that the Centre will meet its fiscal deficit target of 3.3% of GDP for FY19, despite a shortfall in GST collection and an expected boost to spending ahead of 2019 polls. Dividend receipts from the RBI have been one of the major non-tax revenue heads for the Centre. Last year, the central bank nearly halved the dividend to Rs 30,659 crore from the Rs 58,000 crore budgeted by the Centre as the post-demonetisation currency printing cost (about Rs 20,000 crore) depleted its surplus. The RBI had transferred Rs 65,876 crore in 2016.