June 10, 2023

A record windfall from the Reserve Bank of India (RBI) under governor Shaktikanta Das to the tune of Rs 1.76 lakh crore — higher than the aggregate dividend paid out by the central bank in previous three years — will give the Modi government ammunition to fight an ever-widening slowdown in the economy by spurring investment and giving sectoral stimulus.

Given the expected revenue shortfall in a slowing economy, especially against the aggressive targets set by finance minister Nirmala Sitharaman’s maiden Budget presented last month, the windfall from the RBI may be used to trim borrowing, help fund Rs 3.3 lakh crore capex plan, capitalize banks and provide fiscal stimulus to some stressed sectors, experts and economists said.

While the finance ministry seeking higher payouts from the RBI was said to be one of the reasons that led to Urjit Patel’s abrupt quitting as governor in December last year, Das-led RBI board has transferred sums that is said to be far more than the stimulus pumped by some G20 nations into their economies during the decade-old global financial crisis.

This comes at a time when the economic growth rate has slumped to a five-year low after accelerating in the first few years of Modi 1.0 regime. Consumer spending has slowed, private investment hit a bump, the auto sector is facing the worst crisis in two decades leading to tens of thousands of job losses, real estate sector has seen piling of unsold inventories and fast-moving consumers goods (FMCG) companies have seen a decline in volume growth.

While the finance ministry has so far not detailed the blueprint of using the surplus from the RBI, experts said the transfer –especially the excess reserve of over Rs 50,000 crore could be utilised for capital formation by investing in infrastructure building or enhancing the lending capacity of banks by recapitalising them.

“If the government chooses to convert the transferred sum into higher spending, we believe it would tilt more in favour of infrastructure spending rather than consumption,” Emkay, a brokerage, said in a research report.

Overall, this event should support markets in the short term due to additional support from the RBI to the government, it said.

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