India may get rating support, says S&P

India can get ‘rating support’ over time if it utilises the highest-ever dividend of over Rs2 lakh crore received from the Reserve Bank of India (RBI) to reduce fiscal deficit, said an S&P Global Rating analyst on Thursday.

The RBI board has decided to pay a record Rs2.1 lakh crore dividend to the government for the fiscal ended March 2024, more than double of what was budgeted expectation of Rs1.02 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,” said S&P Global Ratings Analyst YeeFarn Phua.

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.