Centre Gets RBI Bonanza Before Full Budget
The India Commentary view
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By Our Editorial Team
First publised on 2024-05-24 16:23:13
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The India Commentary view
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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.
