RBI Dividend Offers Limited Fiscal Cushion Amid Rising Inflation Risks

The Reserve Bank of India's latest dividend payout offers only a limited fiscal cushion for the government, while multiple sources of fiscal slippage, from fuel excise cuts to swelling fertiliser subsidies, remain live risks, according to Kanika Pasricha, Chief Economic Advisor at Union Bank of India.

RBI dividend: Below market hopes

Speaking on ET Now, Pasricha said her internal estimate ahead of the dividend announcement was approximately ₹3 lakh crore, broadly in line with the eventual figure. However, market consensus had drifted higher, expecting a range of ₹3 to ₹3.5 lakh crore.

"If a number of ₹3.5 lakh crore had come in, the fiscal cushion would have been significantly higher," she noted, adding that the combined tally of PSU bank dividends and the RBI payout stood at roughly ₹3.05 lakh crore.

While the dividend offers some relief, Pasricha cautioned that fiscal pressures are building on multiple fronts:

Excise duty cuts on fuel of approximately ₹10 per litre are set to dent central revenues.

Fertiliser subsidy estimates from media sources point to ₹70,000 crore, though Pasricha believes the actual figure could be higher.

Geopolitical risk, ongoing global tensions, could weigh on nominal GDP growth and thereby compress tax collection numbers.

"All in all, RBI dividend is a slight buffer, but there are various sources of fiscal slippage which need to be watched out for," she said.

Fuel prices nudge inflation forecast higher

With petrol and diesel prices seeing roughly ₹8 of cumulative retail hikes, Pasricha flagged meaningful upside risk to inflation for the current financial year.

Her analysis: every ₹8–₹10 per litre increase in retail fuel prices adds 40–50 basis points to full-year inflation. The RBI's Monetary Policy Committee had anchored its FY27 inflation projection of 4.6% on an average oil price of $85 per barrel.

"Even if we assume $90 per barrel for the current financial year, our inflation number is tracking close to 5%," Pasricha said, underlining that the balance of risks is skewed to the upside.

She also pointed to second-order pressures: core Wholesale Price Index (WPI) inflation has spiked to 8.3%, which she expects will gradually feed into core Consumer Price Index (CPI) readings, a risk that warrants close monitoring as the MPC meets next week.

May CPI: Closer to 4.2%, not 4.5%

On the specific question of May CPI inflation, data due to be released ahead of the upcoming monetary policy review, Pasricha was measured.

Before the recent fuel price hike, her estimate for May CPI was around 4–4.05%. She declined to revise this sharply upward to 4.5%, noting that the pass-through of fuel costs into CPI has historically been more gradual compared to WPI.

"The pace of pass-through into CPI has been slightly more subdued," she explained. "I would not want to peg it at 4.5. Maybe somewhere close to 4.2–4.3% — but of course, we'd also want to watch how food prices pan out in the coming days."

The bigger picture

India enters the next monetary policy cycle navigating a delicate balance: fiscal buffers are modest, fuel and food price risks are building, and global uncertainty adds a layer of unpredictability to tax revenue assumptions. For the RBI, a CPI trajectory trending toward 4.2–5% will likely keep the rate-cut conversation cautious, even as growth concerns linger.