The Reserve Bank of India will make its second-highest annual transfer of surplus to the government, but this may not be adequate to absorb the revenue losses triggered by a devastating second wave of the coronavirus.

The RBI board on Friday approved the transfer of Rs 99,122 crore for the accounting period of nine months ended 31 March, a higher-than-expected dividend payout to the government. In FY19, the central bank had transferred Rs 1.79 trillion to the government, which included a one-time transfer of extra reserves. While Rs 1.23 lakh crore came as dividend, Rs 52,637 crore was as excess provisions.

The RBI’s accounting year will change to April-March from 2021-22. Earlier, the period stretched from July to June. The board on Friday also discussed the working of the RBI during the transition period of nine months from July 2020-March 2021.

“The amount of surplus to be transferred by the RBI to the government of India is considerably higher than the budgeted level,” said Aditi Nayar, chief economist at rating agency ICRA. “This will offer a buffer to absorb the losses in indirect tax revenues that are anticipated in May-June 2021, related to the impact of the now widespread state lockdowns on the level of consumption on discretionary items and contact-intensive services.”

The government had budgeted to receive about Rs 50,000 crore from the RBI to be accounted for in 2021-22. In the previous accounting year, the RBI had transferred Rs 57,100.28 crore as surplus.

Besides losses in indirect tax revenues, the growth in direct tax collections would also be compressed. Said Nayar, “High commodity prices at a time when demand and pricing power are subdued, would dent the margins of corporates in many sectors, compressing the growth in direct tax collections.”

The government’s privatisation target could also be missed. The central bank’s higher payout will thus help the government to somewhat bridge the revenue losses induced by Covid-19. “RBI's dividend announcement will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal year. This could be particularly helpful in alleviating the impact of the second COVID-19 wave," Barclays said in a note.