India to get rating support if it uses RBI dividend to reduce fiscal deficit: S&P analyst

NEW DELHI: India can get 'rating support' over time if it utilises the highest-ever dividend of over Rs 2 lakh crore received from the Reserve Bank to reduce fiscal deficit, said an S&P Global Rating analyst on Thursday. The RBI board has decided to pay a record Rs 2.1 lakh crore dividend to the government for the fiscal ended March 2024, more than double of what was budgeted expectation of Rs 1.02 lakh crore.

"The additional dividends from the RBI are around 0.35 per cent of GDP. Whether it would support the narrowing of the fiscal deficit in fiscal 2024-25 would really depend on the final budget that would be passed after the June election results," S&P Global Ratings Analyst YeeFarn Phua told PTI.

The interim budget presented in Parliament earlier in the year targets a fiscal deficit of 5.1 per cent of the GDP.

The additional dividend from the RBI may not necessarily lead to a full decrease in the deficit due to potential revenue shortfalls in areas like divestment receipts or additional allocation to expenditures in the final budget, Phua said in an email interview from Singapore.

However, "if it does lead to a full decrease of the deficit, we believe it will lead to a faster path of fiscal consolidation that, in turn, will provide rating support over time", Phua added.

The government expects to bring down the fiscal deficit to 5.1 per cent of GDP in the current fiscal, down from 5.8 per cent in 2023-24. As per the fiscal consolidators roadmap, the deficit -- the difference between government expenditure and revenue -- would be brought down to 4.5 per cent by 2025-26.

In May last year, S&P Global Ratings affirmed India's sovereign rating at 'BBB-' with a stable outlook on growth but flagged weak fiscal performance and low GDP per capita as risks.

'BBB-' is the lowest investment grade rating.

All three global rating agencies -- Fitch, S&P and Moody's -- have the lowest investment grade rating on India with a stable outlook. The ratings are looked at by investors as a barometer of the country's creditworthiness and impact on borrowing costs.