India’s new government to be greeted with $25 billion from central bank

The upcoming government of India, post its ongoing Lok Sabha elections, will be greeted by a $25 billion cheque from the central bank, allowing it the chance to either narrow the fiscal deficit quicker, or boost spending, both of which shall be cheered by the 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.

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The surplus fund will enable the new government to either 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.

During the election campaigns, the opposition party’s star campaigner Rahul Gandhi has promised the loan waiver for the farmers of the country and an annual cash handouts of Rs. 100,000 to poor women. Meanwhile, no such new major welfare measures are announced by Narendra Modi – led Bharatiya Janata Party (BJP).

“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,” stated Shreya Sodhani, an economist at Barclays.