Starved of revenue after a substantial cut in the corporate tax rate amid an economic slowdown, the government may seek an interim dividend from the central bank in FY20 to prevent its fiscal deficit from going haywire. The likelihood of the government turning to the central bank for an interim transfer got reinforced after the National Statistical Office on Tuesday pegged the expected nominal GDP at Rs 204.4 lakh crore, lower than the budgeted Rs 211 lakh crore. This alone will widen the Centre’s fiscal deficit to 3.44% of GDP against the 3.34% target, while the sharp decline in revenue (both tax and disinvestment) could add to the fiscal woes.
“That option (asking RBI for an interim dividend) is on the table. A decision will be made shortly,” a senior government official told FE. In such a case, the central board of the Reserve Bank of India could consider the government’s request in the customary post-Budget meeting with the finance minister, said the official.
Earlier this fiscal, the RBI transferred Rs 1.48 lakh crore to the government (Rs 58,000 crore above the Budget estimate for FY20) after it accepted the Bimal Jalan panel recommendations, in the biggest-ever annual transfer from the central bank to the government. The central bank had paid Rs 28,000 crore as interim dividend from its 2018-19 fiscal accounts (July-June) in February, which helped the government contain deficit at 3.4% in the last fiscal.
Hit by a huge revenue shortfall, the Centre has already imposed strict curbs on revenue expenditure. Its decision to cap the Q4 spending at 25% of the full-year Budgept estimate, compared with the usual practice of 33%, could result in an annual spending compression of Rs 2.2 lakh crore, versus the budgeted level of Rs 27.86 lakh crore. If the trend of tax receipts in recent years is any indication, then the shortfall in net tax receipts could be as high as Rs 3 lakh crore, according to an FE analysis.