It is like a good birthday gift the economy has got. Nobody was expecting such a big fat dividend from RBI. And at least one lakh crore is something which has come as a surprise number. I mean 70,000, 80,000 crore is something which was anticipated and expected. Maybe one lakh crore was expected. But 2,10,000 crore, nobody was expecting. Why do you think Reserve Bank of India has given this dividend? I mean, what has changed on their balance sheet which has in a sense, prompted them to be so generous with the dividend payout?
I think as you rightly put it, the average dividend declaration that used to happen every year somewhere in the range of about 65,000 to 80,000 crores numbers. And these are, of course, numbers, one, it came as a big surprise and second, there are reasons as well for that. I think RBI has been building up the forex reserves which are essentially being invested in securities which are overseas sovereign securities. The bond yields generally have gone up. In US bond yields have remained in the range of about 4% to 4.5%, even up to 5% on a short-term has gone up to 5%.
The earnings on foreign investment that they have made, reserves they have made have gone up quite substantially. From as against, say, 1-1.5% which used to be three years back, which now on the average is about 4.5% to 5%, so that one, income levels have gone up. So, you just imagine on a larger forex reserves, which is being parked in sovereign what kind of income would have come.
Second, of course, is the forex has been, the reserves have been rising, and RBI on and off does participate in the market as part of the stabilising factor.
There are gains, also seems to have accrued on their forex investments that they have or the intervention that they may have at all point of times.
So, I think combination of these two things put together have made RBI to come with about highest ever dividend, especially at a time where the market is also generally getting, not market, in general, the bond market keeps a very close eye on fiscal numbers.
This has come as a big boon for the bond market for fiscal deficit as well as for keeping the interest cost borrowing for government borrowing also is somewhat at the moderate level.
As I think we have seen the bond market in general for the last few days have been rallying, now it has now come below 7%, close about 7%, 7.05 or 7.09.
It is also a stability factor that reflects on how the fiscal situations are being maintained. Definitely, it is a big move from RBI. It is a big boon for the Government of India. It improves their ability to spend more, reduce the fiscal, reduce the interest cost, revenue expenditure especially they can cut down as we move forward.
I think we will have a multiple cascading positive impact both for the economy and the government’s finance ability to drive things as well as it will have a larger impact on the rating as well.
It is my estimate that the rating of Indian economy would improve quite significantly. It can open the door for global rating agents to debate, evaluate very quickly and understand the forex, understand the fiscal roadmap the next few years post the election outcome happening, the budget.
There is a high probability it will also lead to improving the rating of the country as well. I think it will have many positive impact of this one move of Reserve Bank of India.
Oh, yes, absolutely and that is the other thing because the messaging for the market is so good because once the elections are done, you will have the government hand out its budget in the month of July and now this also increases the probability of reducing the overall government borrowing should the current revenue sources fall short in any way and the market, which is so obsessed with the fiscal deficit target, that seems to be taken care of.
I think if you look at the component, one of the large component of fiscal deficit is also coming from the revenue expenditure which is nothing but the interest cost.
So, as the interest comes down on the borrowing and that actually lead to a reduction in the revenue expenditure, interest cost coming down, therefore, it improves the overall fiscal numbers. Second is the GST.
It is also, if you look at upward territory, I think we have now crossed two lakh. My own estimate as we move forward, I will not be surprised if the number crosses about 2,50,000 crores next year given the fact more and more people are coming under the radar of GST from a compliance point of view and more and more products also will come and therefore that one side is improving.
Then, the RBI dividend definitely is improving. And third, of course, which is my own belief is, which is again good thing for the country, we have built many assets which are government-owned public sector infrastructure that has been created over the last few years, the government will have enough rooms for them to do divestments of assets.
I am not talking about divestments of companies. I am talking about the monetising. Monetising of assets could also become one of the big thing.
And overall looking at it, it can actually do a lot of good for reducing the government borrowing, therefore interest cost comes down, that interest cost coming down can be effectively used for many other purposes, especially on the investment-led demand that government can use it.
At the same time, they can also use it for cutting down marginally on GST so that they can boost the consumption as well if the price point is the one which is not currently, which is holding back the consumer to spend and that also can actually be boosted in the next, say, fiscal year.
So, if this one lakh crore comes back into the system, what are the chances that for FY25 budget numbers could be dramatically different for the expenditure side because more money means more expenditure and more expenditure either could happen in terms of capital expenditure or it could happen in terms of subsidy build-outs.
So far in the last few years, the government has not been focusing too much on setting a target on fiscal. FRBM Act, they, of course, continue to give respect but at the same time they have not kept any target on fiscal numbers, except in the last budget finance minister did mention about the fiscal discipline which the government has to maintain.
So, these kind of changes coming in. We are seeing actually all-round improvement in every aspect, moving parts of the fiscal construct, the way the construction is coming on fiscal numbers, we have seen improvement in every segment.
Therefore, there is a high probability the 25-26, they may probably roll out their target for fiscal numbers, while keeping the confidence on, as you rightly mentioned, the expenditure coming down and the revenue increases significantly and other ways and means of raising resources also improves quite significantly.
So, therefore, that one target could come. The moment that the target comes, I think India probably will stand out completely different from the rest of the world, when the US itself is having and building up deficit in every respect.
I think US would have gone to the highest ever possible fiscal deficits as it stands today and when it compares to that I think probably India would stand out a little bit different even on the economy and the fiscal financial numbers as well.
I think that is the way I see it next. So, this will of course give a lot of leg room for government to continue to spend and therefore boost the investment-led demand in the country so that making the economy to grow at about average about 7.5 to 8.25 times quite possible.