Expecting high dividend payout from RBI

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Nirmala Sitharaman, Finance Minister of India can expect another payout in the coming weeks from the Central Bank of India but as there is a huge revenue hole which is created by the widespread COVID-19 pandemic, so it is unlikely to plug. Since August is typically the month in which Central Bank makes its annual transfer to the government, a meeting is being held on Friday by the Reserve Bank of India’s board which is monitored by the governor Shaktikanta Das and the expectation of government is running high that the RBI will disclose its dividend payout.

In the previous year, the Reserve Bank of India’s board had approved a record payment of 1.76 trillion rupees to the government, which includes 1.23 trillion rupees as dividends and about 526.4 billion rupees from its surplus capital. But now in this year, the local media has speculated authorities are expecting more, but New Delhi has budgeted for a 600 billion rupee transfer. While the economist and analysts are forecasting anything between 400 billion to 1 trillion rupees. Kanika Pasricha an economist at the Standard Chartered plc in Mumbai said that our estimation is for 400 to 500 billion rupees so that it may fall short of budgeting levels and thereby adding fiscal pressure.

As the Indian economy heads for its first four-year contraction in more than four decades, the revenue is falling short of projections. While the government is forced to spend more to cushion to blow from the widespread COVID-19 pandemic straining the budget deficit. By drawing more cash out of the Central Bank sell state assets and push up borrowing which is already at a high record, the government can help to bridge the funding gap.  In the current fiscal year, the standard charter predicts that the government’s fiscal deficit will surge to 7.4 percent of gross domestic product which is more than double the government’s original target.

In the first three months of the fiscal year which is already standing at 83 percent of the full-year target, the call for RBI is growing to directly finance the fiscal deficit. While the central banks in Indonesia and the Philippines had already adopted this approach. But those opposed to debt monetization in India. A Prasanna the chief economist at ICICI Securities Primary Dealership in Mumbai said that we expect a dividend of Rs 1.05 trillion based on higher income from the domestic assets.

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