The transfer of Reserve Bank of India (RBI) surplus will only give marginal relief, while risk to the fiscal remains on account of the expected shortfall in Goods and Services Tax (GST) revenues, Kotak Equities said on Tuesday.

Another analyst firm, IDFC AMC, is of the view that any temptation to use this amount towards a “fiscal stimulus” risks regenerating worries around the quality and effectiveness of meeting fiscal deficit targets.

“Based on the Jalan Committee’s recommendation, the RBI will transfer Rs 52,600 crore as per the revised ECF (Economic Capital Framework). This is in addition to the surplus transfer of Rs 1.23 trillion (including Rs 28,000 crore of interim dividend for FY2019) in FY2020,” said a Kotak Equities report.

“The government will gain around Rs 58,000 crore from the RBI compared to FY2020 budget estimates. This will help to some extent in bridging an estimated Rs 1.5 trillion of shortfall in GST revenues even as the fiscal continues to be strained due to weak tax revenues”.

The Kotak report said the 2019-20 Budget had assumed an RBI dividend of Rs 90,000 crore and ARBI has transferred Rs 1.23 lakh crore, including Rs 28,000 crore of interim dividend in 2018-19. The government will receive Rs 95,400 crore as dividend for the current fiscal, assuming no interim dividend is announced.

According to Kotak, optically, the excess provision transfer of Rs 52,300 crore, as well as the Rs 54,000 crore of higher dividend, will seem positive for bonds.

“The market, however, was expecting a transfer of around Rs 1.5-2 trillion though we have firmly believed that a large transfer would be unlikely,” Kotak said.

“Fiscal slippage risks remain given our estimated shortfall of around Rs 1.5 trillion in GST revenues and around Rs 95,000 crore in net tax revenues. If direct taxes disappoint too, fiscal pressures will intensify (amidst slowing growth). While the initial reading could be positive for GSec, fiscal slippage risks will continue to weigh on yields,” it added.

IDFC AMC Head (Fixed Income) Suyash Choudhary said that from a budget standpoint, the extra “windfall” owing to the Jalan committee is Rs 58,000 crore.

“Given the expected revenue shortfalls in a slowing economy and especially vis-a-vis the aggressive assumptions in the budget, it would be prudent to keep this amount in order to meet the budget numbers more credibly,” Choudhary said.

“So far, any hope of meeting the budget targets rests on a similar expenditure compression as that undertaken last year including via moving some items of spending ‘below the line’. Any temptation to use this amount towards a ‘fiscal stimulus’ risks regenerating worries around the quality and effectiveness towards meeting the deficit targets,” he said.

“Overall the identified ‘excess’ transferrable capital by the Jalan committee is only just above Rs 50,000 crore, far below the hopeful bounties being talked about. Not just that, future pay-outs are now formula-driven and subject to some constraints with respect to the maintenance of a minimum CRB (contingent risk buffer).”

Some foreign broking houses have said that the RBI windfall would be used in achieving the fiscal deficit target.

Nomura said: “RBI’s high net income in 2018-19 eases the fiscal pressures and dividend transfer will help the government achieve 3.3 per cent fisc deficit target. Bimal Jalan committee suggests a conservative Economic Capital Framework.”

Morgan Stanley was of the view that the “government could intend to use the enhanced transfer to help meet the fiscal deficit. Enhanced transfer to aid fiscal flexibility”.

This global analyst firm, however, did not see much possibility of a big fiscal stimulus.

“Government is likely to continue its calibrated response and a big fiscal stimulus is still a low probability,” Morgan Stanley said.

Credit Suisse said the transfer will mostly be used to offset weak tax collections.

Citi said the methodology suggested by the Jalan committee rules out any such large transfers from the RBI in the next few years. It said the windfall for the government could be higher if it decides to ask for another interim dividend in the fourth quarter.

The trend for the future years will depend on the available contingency risk buffer, Citi added.