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Centre Gets RBI Bonanza Before Full Budget

By Our Editorial Team
First publised on 2024-05-24 16:23:13

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The Centre received an unexpected bonanza - the RBI approved the transfer of Rs 2.1L cr as surplus to it. This is 140% more than what was transferred in 2023 and much higher than what the government was expecting. This has provided the government a lot of breathing space in managing the budgetary accounts. It can either use the funds to reduce the fiscal deficit to the target of 5.1% aimed for the year or increase spending on infrastructure projects or use a mix of both. In all cases, full budget of the new government in July will have a lot less of financial jugglery and a lot more of solid numbers riding on this booty.

As per the numbers, the RBI dividend translates to between 0.6% and 0.7% of the GDP which is huge. The government had planned to reduce the fiscal deficit from 5.8% last year to 5.1% in this fiscal. The RBI dividend alone can help in achieving this. But that would not make sense as fiscal deficit has to be reduced by fiscal discipline which means curtailing revenue expenditure or generating additional income (through disinvestment, for one, where the governmentâs plans have not materialized in the last 10 years) and reducing revenue deficit. If the revenue deficit in 2024-25 remains the same or balloons further, the RBI largesse would have a negative effect as it will fail to bring fiscal discipline in the system. Hopefully, with the elections done and dusted (which means that there is no immediate need of playing to the gallery by announcing additional welfare schemes), the new government will show fiscal prudence and reduce both revenue deficit and fiscal deficit.

The NDA government has been following the path of fiscal consolidation since the last few years. It must continue to do so. The RBI bonanza is a one-off. It can be used wisely to achieve a lot of things but it must not lead to fiscal indiscipline.