Economists divided over impact of RBI’s surplus transfer on fiscal deficit

Union Budget has projected fiscal deficit at 4.4% for FY26
| Photo Credit:
DANISH SIDDIQUI

Record surplus transfer by the Reserve Bank of India (RBI) is unlikely to lower the fiscal deficit for the current fiscal (FY2025-26), several economists say. However, a research note by SBI expects deficit to be lower by at least 20 basis points (100 basis points mean 1 percentage point).

The Budget has projected fiscal deficit (difference between expenditure and income) at 4.4 per cent for FY26. This has factored ‘dividend /Surplus of Reserve Bank of India, Nationalised Banks & Financial Institutions’ at ₹2.56 lakh crore. On Friday RBI announced transferring ₹2.69 lakh crore as surplus for FY25 to the government. This means receipt through ‘dividend /Surplus of Reserve Bank of India, Nationalised Banks & Financial Institutions’ has already exceeded the budget estimates and the final number would be much higher.

However, this has not enthused economists and foreign firms to lower the fiscal deficit estimate. According to Aditi Nayar, Chief Economist with ICRA, surplus payout is ₹0.4-0.5 lakh crore (equivalent to 11-14 bps of GDP) higher than the amount that was likely assumed in the FY26 Union Budget, implying an equivalent upside to non-tax revenues, which would provide some buffer to make up for a miss in taxes or disinvestment receipts, or higher-than-budgeted expenditure in the fiscal.

Additionally, “the upward revision in the FY2025 nominal GDP number suggests that despite a relatively lower growth of 9 per cent in FY26 (as per ICRA’s expectations) vis-à-vis the budgeted levels of 10.1 per cent, the fiscal deficit-to-GDP ratio can be contained at 4.4 per cent in FY2026, while also accommodating a marginal fiscal slippage (to the tune of ₹30,000 crore),” she said while adding that this provides some comfort on the fiscal front.

Some feel that the transfer is lower than expectations. The market expectation was at least ₹3 lakh crore. However, due to higher risk buffer, it was lower than that. In a statement RBI said that the transferable surplus for the year (2024-25) has been arrived at on the basis of the revised Economic Capital Framework (ECF) as approved by the Central Board in its meeting held on May 15, 2025. The revised framework stipulates that the risk provisioning under the Contingent Risk Buffer (CRB) be maintained within a range of 7.50-4.50 per cent of the RBI’s balance sheet. Earlier it was 6.5-5.5 per cent.

A research note by Barclays said that this additional source of non-tax revenue accounts for around 7.9 per cent of the central government’s budgeted revenue receipts, slightly higher than the previous year (7 per cent), but does not provide a significant upside to revenue collections for FY25-26. On the revenue front, “we continue to believe that the budget revenue targets for FY25-26 appear credible, with the government assuming a tax buoyancy lower than the decadal average in the pre-pandemic period. Put together, we see the government on track to meet its fiscal deficit target of 4.4 per cent of GDP in FY25-26,” it said.

Meanwhile, a research note by SBI expects that with today’s transfer, this number would be now much higher than the budgeted estimates. “We expect fiscal deficit to ease by ~20 bps from the budgeted level to 4.2 per cent of GDP. Alternatively, “it will open up for additional spending for around ₹70,000 crores, other things remaining un-changed,” it said.