One of the most important announcements made in last week’s budget speech by the acting Finance Minister Piyush Goyal was the fact that the government has missed its fiscal deficit target of 3.3% of GDP and instead a revised estimate of 3.4% of GDP was provided. In spite of disinvestment target and GST collection targets not being met, Arun Jaitley continued to give assurances that the fiscal deficit would not be allowed to slip; well, I guess he was proved wrong after all.
So now what?
Now the government has brought back on the table a contentious issue; an issue that was one of the primary reasons for the previous RBI Governor Urjit Patel to finally put in his papers; the issue of transfer of reserves from the RBI to the government. Dividends transferred by the RBI in 2016-17 was ₹ 65,876 crores, in 2017-18 it was ₹ 40,659 crores and that in 2018-19 it was ₹ 40,000 crores. The government in its latest demand has instructed the RBI to transfer ₹ 27,380 crores of surplus withheld by the central bank for 2016-17 and 2017-18, apart from an interim dividend. The government has been insisting that the RBI hand over its surplus reserves amid a shortfall in revenue collections. Access to such funds will help the government to meet its fiscal deficit target, infuse capital into weak banks, boost lending and fund welfare programs.
Piyush Goyal also made an announcement in the budget that the government expects ₹ 82,911 crores through dividends from all banks, financial institutions and the RBI in the next financial year. Out of this amount the government is seeking around ₹ 69,000 crores in dividends from the RBI itself for F.Y. 2019-20, totalling about 83% of the combined dividends. With all that money we remain hopeful that the Modi led government can exercise prudence in its expenditure and manage to stick to its revised fiscal deficit target at least.