Fiscal deficit of govt to ease by 20 to 30 bps to 4.2% of GDP by RBI's bumper dividend: SBI

The fiscal deficit of the central government could ease by 20 to 30 basis points from the budgeted level of 4.5 per cent to 4.2 per cent of GDP by the bumper dividend transfer by Reserve Bank of India, according to a report by State Bank of India. The Union Budget for 2025-26 had projected a dividend income of Rs 2.56 lakh crore from the Reserve Bank and public sector financial institutions. However, with the latest transfer from the RBI, the actual dividend income will be much higher than budgeted. The report mentioned that this additional revenue gives the government more fiscal room, either to reduce its deficit or to spend more in priority areas.SBI said "We expect fiscal deficit to ease by 20 to 30 bps from the budgeted level to 4.2% of GDP. Alternatively, it will open up for additional spending." It noted that the bumper dividend transfer not only strengthens the government's fiscal position but also offers support in managing the yield curve amidst global financial uncertainties. It also provides a boost to the RBI's Contingency Risk (CR) buffer, enhancing its financial resilience.The report further elaborated on the dynamics behind the RBI's large surplus. The central bank's surplus was primarily driven by its liquidity adjustment facility (LAF) operations and interest income from its holdings of domestic and foreign securities. From June 3 to December 13, 2024, the RBI was in absorption mode under the LAF, indicating excess liquidity in the banking system. However, post mid-December, the liquidity trend reversed, and the RBI began injecting funds into the system until the end of March 2025.By March 31, 2025, system liquidity turned surplus once again, standing at Rs 1.2 lakh crore. The average liquidity deficit between December 16, 2024, and March 28, 2025, was Rs 1.7 lakh crore. Going forward, durable liquidity is expected to remain in surplus in FY26, supported by factors such as open market operation (OMO) purchases, the dividend transfers by RBI, and a projected balance of payments (BOP) surplus of USD 25-30 billion.SBI's report highlighted that this evolving liquidity environment, along with the strong dividend support, provides the government with an opportunity to either meet its fiscal consolidation goals ahead of schedule or create fiscal space for developmental spending.