Fiscal 2017-18 suffered a sharp fall in dividends from
RBI. Expectations that demonetisation would lead to a windfall transfer
to the exchequer were grossly misplaced. In 2015-16, dividends from RBI
and other financial institutions had peaked at Rs.815 billion. These fell
to Rs.712 billion in 2016-17. This was the year of demonetisation but,
there was no expectations of any extraordinary rise in dividends in
this year. The expectation of a windfall was for 2017-18. But, the year
disappointed on this account as dividends from RBI and other financial
institutions fell to Rs.516 billion. This was the year when the RBI
announced the outcome of demonetisation and, it did not show the expected
large extinguishing of its liabilities which, it was presumed would lead
to an extraordinary transfer to the central government. Budget 2018-19
expects the proceeds from such dividends to rise only marginally to
These dividends accounted for about 15.3 per cent of the gross
fiscal deficit in 2015-16. This was their peak contribution. Their
contribution has been rising. It was a mere 4.3 per cent in 2011-12. But,
their contribution to the fiscal deficit fell to 13.3 per cent in 2016-17
and then to 8.7 per cent in 2017-18. So, RBI and other dividends
are important but, not a big deal at least for financing the central
Dividends from RBI is the most important component of what is
called the non-tax revenues of the central government. Earlier they
accounted for nearly a third of all non-tax revenues of the central
government. This ratio is down to about 22 per cent.
The share of non-tax revenues in total revenues has been
declining. It fell from a range of 16 to 18 per cent to 10
per cent in 2018-19.
Except for the dividends mentioned above, non-tax revenues
arise out of user charges of government assets or service charges for
services provided by the government. Ideally, these should be rising to
reflect their demand. It would be good if the government charged a fair
price for its commercial services and collected revenues from those who
benefited from these services. This is better than raising taxes.
The only aggression in raising user-charges is with respect
to telecom. Other user-charges as a source of revenue are not pursued
strategically as perhaps, they should be - in a fair and non-rent
The government has been very successful in generating resources
from disinvestment in 2017-18. Disinvestments are not considered a part
of the deficit although there is a case that they should be considered
so. Disinvestments are considered as a capital receipt, or more correctly
a non-debt creating capital receipt.
Debt-creating capital receipts are the various sources of funds
from which the deficit is financed. Net market borrowing is the principal
source, accounting for bulk of the capital receipts. These amounted to
Rs.4 trillion in 2017-18 compared to Rs.3.5 trillion in 2016-17 . But,
in the preceding five years, net market borrowing was between Rs.4
trillion and Rs.4.7 trillion in a year.
One indicator of the fiscal stress that we are going through
currently is that net market borrowing increased during 2017-18 to Rs.4
trillion although receipts from disinvestments increased to a record
Rs.1 trillion. Logically, if proceeds from disinvestments increase then
the need to borrow from the markets to fund the deficit must fall. But,
in 2017-18, both disinvestments and market borrowing increased. Further,
receipts from small savings also jumped up unusually sharply.
This is particularly pertinent this year because disinvestment
is more than twice such receipts anytime in the past. That disinvestment
itself is unconventional because it reflects largely, one PSU (ONGC in the
present case) buying a large chunk of the government’s equity of another
(HPCL) or, the PSU buying back their own equity. These deals account for
45 per cent of all disinvestments. Apparently, disinvestment is more
about balancing books rather than reforms towards privatisation.
The unconventional disinvestment transactions have led to the
disinvestment proceeds of 2017-18 contributing 14 per cent of
capital receipts when it normally contributes about 3-7 per cent.
Total non-tax receipts, including non-tax revenues and capital
receipts amounted to Rs.9.5 trillion in 2017-18. Share of the largely
unconventional disinvestments in this year works out to 10.6 per
cent. This is much higher than the less-than 5 per cent share that
disinvestments had in these receipts in the preceding years.
The disinvestment target for 2018-19 is lower than in 2017-18 but
at Rs.800 billion it is aggressive nevertheless. And, market borrowing
during 2018-19 are also only marginally lower than in 2017-18. It is
assumed that small savings will revert back to a more normal level. But,
it is not clear what caused that unusual jump in 2017-18.