This is the third consecutive year when the government has demanded interim dividend from the central bank.

Money Fiscal Deficit Friday, January 24, 2020 - 20:05

The Finance Minister (Ministry) appears to be keen on sticking to the self-imposed fiscal deficit targets while presenting the Union Budget on February 1. While it has been an open secret that there has been a slowdown in the economy and the revenue collections have been below target, there were concerns raised on how the FM will balance the government’s finances. The answer has come in the form of a news report that the central government is asking the Reserve Bank of India (RBI) to release an interim dividend of ₹10,000 crore for the financial year 2019-20 (FY20). This is the third consecutive year when the government has demanded interim dividend from the central bank.

The issue has a bit of history to it. The Reserve Bank of India follows a financial year from July to June and it is only after it gets its accounts audited etc. after June that the dividend announcement can be made. The present government has started the practice of demanding that the RBI pay it interim dividend around this time of the year to help make the adjustments in the revenue figures and present a more respectable budget.

Meanwhile, an expert committee led by former RBI Governor Bimal Jalan had been constituted which in its report had recommended that the RBI too can align its financial year with that of the government and make it April to March. The Bimal Jalan committee had said the RBI can consider paying interim dividend not as a practice but as an exception.

Under the current circumstances, the Finance Minister may have very little options before her. Even as the direct and indirect tax collections slowed down, the disinvestment targets could also not be met. Large ticket disinvestments like Air India may not materialise within this financial year. Nirmala Sitharaman’s predicament is quite understandable.

She is slated to address the central board of the RBI in the first week of February and the board will hold its customary post-budget meet on February 15. The final decision on releasing the interim dividend to the central government will be taken at this board meeting. Last year, the RBI had released an interim dividend of ₹28,000 crore.

It was on the basis of the recommendation of the Bimal Jalan committee that the RBI transferred ₹1.76 lakh crore to the government which came under a lot of criticism.

It is expected that post 2021, RBI will also follow the April to March financial year.