A win-win situation! RBI's bumper dividend will leave India's new government spoilt for choice
fiscal deficit quicker, both of which will be cheered by investors.
On Wednesday, the Reserve Bank of India (RBI) announced a record 2.11 trillion rupees dividend transfer to the government, more than double New Delhi's and street estimates, leading to a decline in bond yields and a rise in equity markets.
The surplus fund can help the new government, which will take charge after the current elections, bring down its fiscal deficit by 0.3% of gross domestic product (GDP) or increase spending on infrastructure or «populist» stimulus, Citi Research's Samiran Chakraborty said.
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«The bond markets would likely hope that the government follows the deficit reduction route, while the equity markets would likely prefer the government taking the expenditure increase one,» said Chakraborty.
During the election campaigns, the opposition Congress promised annual cash handouts of Rs 1 lakh to poor women and unemployed youth. The party's star campaigner Rahul Gandhi also promised debt waiver for farmers.
But Prime Minister Narendra Modi of the Bharatiya Janata Party (BJP) has avoided promising any new major welfare measures.
«Despite higher revenue from the RBI dividend, we doubt the government would opt for more populist expenditure in its budget, if the government is BJP-led,» said Shreya Sodhani, an economist at Barclays.
«The current government has not shown a disposition
