InvestorQ : Do you think that the lower RBI dividend this year will put pressure on fiscal deficit?
Anjana Aiyar made post

Do you think that the lower RBI dividend this year will put pressure on fiscal deficit?

Answer
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Khushi Patel answered.
2 months ago


There is no doubt that the lower dividend will put pressure on the fiscal deficit but the dividend has been as per estimates. The problem is that all the other heads, other than the RBI dividend, have just gone out of control and that is the crux of the problem.

Government is fighting a tough battle against fiscal deficit and the pandemic has made it worse. Government is betting big-time on raising Rs.210,000 crore via disinvestments, including LIC divestment. But there has hardly been any progress in the first 4 months.

Even income tax and GST revenues are expected to be short by 2% of GDP due to the pandemic. In these circumstances, the RBI dividend being less than one-third of last year will certainly mean that the fiscal deficit will go for a massive toss.

You may remember that the government has already hiked its fiscal deficit target for the current fiscal year FY21 to beyond 4%. However, that looks like a remote possibility now. Nearly 85% of full year fiscal deficit is already breached.

Now, economists expect fiscal deficit to double to Rs.16, 00,00 crore in FY21, which would translate roughly into 8% of GDP. Now, if the GDP contracts, the fiscal deficit may only look worse than that. We can only keep our fingers crossed at this point of time.