RBI dividend will help but Centre’s finances to remain under pressure

The transfer of Rs 2.86 lakh crore by the Reserve Bank of India (RBI) to the Government of India is expected to help the Centre manage its finances but may not give it enough buffer to meet the fiscal deficit target of 4.3% of the GDP in 2026-27.

Policy watchers and economists note that the Centre may see some fiscal slippage and would also have to cut down expenditure and look at additional revenue sources as it is faced with a high oil and fertiliser bill as well as slower revenue growth.

“The dividend by the Reserve Bank of India is a little higher than last year. But there will be a slippage in the fiscal deficit of 40 to 50 basis points of the GDP above the Budget estimate. The dividend won’t be adequate and the other measures will have to be taken by the government, probably on the expenditure side,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

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In a webinar on May 22 on the Impact of the West Asia war on the Indian economy, Bank of Baroda economists pegged the fiscal deficit at about 4.7-4.8% of the GDP in FY27 from 4.4% in FY26. They also expect GDP growth to slow down to about 6.5-6.8% this fiscal from 7.6% last fiscal.

In the Union Budget 2026-27, the Centre had pegged the dividend/surplus of RBI, nationalised banks and financial institutions at Rs 3.16 lakh crore this fiscal and it is now likely that this amount would be overshot once dividends are also paid by state owned banks and financial institutions. RBI had declared a dividend of Rs 2.69 lakh crore in the previous year 2024-25.

The BoB economists underlined challenges for meeting the Budgeted fiscal deficit ratio if oil prices remain elevated and said the fertilizer subsidy bill would have to be increased by about 20% to Rs 34,000 crore to Rs 35,000 crore. There would also be a shortfall of Rs 1.3 lakh crore from the reduction in the additional excise duty on fuel while lower dividend from oil marketing companies may impact non-tax revenues of the Centre.

They, however, said that higher than estimated nominal GDP growth, due to the base effect and inflation may help the government meet its Budgeted fiscal deficit ratio.

Aditi Nayar, Chief Economist, ICRA said that as compared to the Budget Estimates, the fisc is expected to remain under pressure owing to expectations of higher fertiliser and fuel subsidy requirements, and lower tax collections and OMC dividends.

“While the Economic Stabilisation Fund and customs duty hikes on gold and silver imports are likely to provide some cushion, we expect the government of India to exceed the budgeted fiscal deficit target for FY27 of 4.3% of GDP by 40 bps, assuming an average crude oil price of $95/barrel in the fiscal,” she said.

The Centre is expected to revisit the Budget math later in the year with no clarity on when the West Asia conflict will end and the trajectory of global crude oil prices. While indirect tax officials have indicated that there would be some hit on revenues from the tax relief measures, direct tax officials are hoping to strengthen revenue mobilization.

In its Central Action Plan for 2026-27, the Central Board of Direct Taxes and has identified Rs 2.57 lakh crore of demands fully confirmed by the CIT (Appeals) in FY26 which can be realised.