Record RBI dividend likely to provide limited fiscal support: Economists
I'm LongbridgeAI, I can summarize articles.Economists predict that the RBI's record surplus transfer of Rs 2.87 trillion will provide limited fiscal support for FY27, with expected fiscal slippage of at least 20 basis points due to rising fertilizer subsidies and potential revenue shortfalls. The fiscal deficit is projected to rise to 4.46% of GDP, influenced by lower tax collections and increased subsidy requirements. Mitigating factors may include drawdowns from the Economic Stabilisation Fund, but overall fiscal pressures remain significant.
Considering the possibility of revenue shortfall and expenditure overshoot, especially fertiliser subsidies, which are expected to rise by an additional Rs 70,000 crore, economists expect a fiscal slippage of at least 20 basis points in FY27.
Emkay Global chief economist Madhavi Arora said some mitigating factors could partially help absorb the pressure, including drawdowns from the Economic Stabilisation Fund (Rs 1 trillion), rationalisation of non-core capital expenditure (Rs 35,000 crore), and cuts in non-core revenue expenditure (Rs 45,000 crore).
“Even after accounting for these offsets, FY27 could still see fiscal slippage of at least 0.2 per cent of GDP, assuming no shortfall in divestment proceeds or other revenue streams,” Arora said.
The Budget has projected the fiscal deficit at 4.3 per cent of GDP, assuming 10 per cent growth in nominal GDP. But following the downward revision in nominal GDP after the rollout of a new base year, 10 per cent growth in nominal GDP is likely to take the fiscal deficit to 4.46 per cent of GDP in FY27.
Assuming an average crude oil price of $95 per barrel in the current year, and accounting for gains from the customs duty hikes on gold and silver imports and the Economic Stabilisation Fund, ICRA chief economist Aditi Nayar expects the government’s fiscal deficit to slip to 4.7 per cent of GDP in FY27.
“As compared to the Budget Estimates, the fisc is expected to remain under pressure owing to expectations of higher fertiliser and fuel subsidy requirements, and lower tax collections and oil marketing companies’ dividends,” Nayar said.
CareEdge chief economist Rajani Sinha said she expects a revenue loss of Rs 1.1 trillion this year from the excise duty cut announced in late March, and there may also be a slowdown in tax collections due to lower corporate profits. The Central government had cut special additional excise duty by Rs 10 per litre each on petrol and diesel on March 27.
“The RBI surplus transfer is marginally lower than expected, thereby limiting the levers for the government in terms of managing the fiscal slippage risks,” Kotak Mahindra Bank chief economist Upasna Bhardwaj said.