The unexpected dividend of Rs 2.1 lakh crore from the Reserve Bank of India (RBI) is positive for the country’s fiscal situation. Its use will clarify the fiscal priorities of the new government. Global rating agencies said this on Friday. The board of directors of the Reserve Bank of India (RBI) earlier this week decided to give a dividend of Rs 2.1 lakh crore to the government from the profits earned in 2023-24. This is more than double the budget set by the government of Rs 1.02 lakh crore.
India’s rating will be positive for fundamentals
According to the news, Jeremy Zook, Asia-Pacific ‘Sovereigns’ Director at Fitch Ratings, said that sustained deficit reduction, especially if supported by sustainable revenue-raising reforms, would be positive for India’s rating fundamentals in the medium term. Zook said via email that whether the dividend is saved or used for additional spending can provide signals about the government’s fiscal priorities.
India gets ‘BBB’ rating
Fitch has given India a ‘BBB’ rating with a stable outlook. Another rating agency Moody’s Ratings said the fiscal impact of the larger-than-expected dividend transfer by the RBI will be determined by what the incoming government decides to do with these additional resources. On the one hand, the government may exercise restraint on spending and help it move towards meeting its deficit target. This will reduce borrowing requirements, freeing up cash in the market for other purposes, said Christian D. Guzman, senior vice president at Moody’s Ratings.
The government can also use this additional money for new policies and initiatives. Global rating agency S&P Global Ratings said the additional dividend from the RBI is about 0.35 per cent of GDP. India could get ‘rating support’ over time if it uses the unexpected dividend to reduce the fiscal deficit.
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