Critically analyse the fiscal implications of relying on non-tax revenues like RBI surplus and PSB dividends for resource mobilisation. How does this impact long-term capital formation?

Relying on non-tax revenues such as RBI surplus and PSB dividends has given the Union Government useful fiscal room without raising taxes. Yet, this is a cyclical and limited source of funds, not a stable substitute for broad-based revenue mobilisation.

• Fiscal gains: Record transfers from the RBI and higher PSB dividends help bridge revenue gaps, support fiscal deficit targets and reduce immediate market borrowing. This can release space for public capital expenditure.
• Why it matters now: With lower tax buoyancy and uneven disinvestment receipts, such receipts have become an important cushion for the budget.

• Concerns: Excessive dependence may encourage fiscal complacency and obscure the need for tax reform. RBI surplus is tied to market conditions, forex movements and balance-sheet decisions; PSB dividends depend on profitability, asset quality and credit growth.
• Institutional costs: If the RBI retains too little buffer, financial stability may weaken. If PSBs are pushed for high payouts, their internal capital accretion and lending capacity may suffer.

Impact on long-term capital formation: In the short run, these revenues can finance roads, railways and other productive assets. But if they replace durable tax mobilisation, the result may be under-investment in institutional strength, weaker bank balance sheets and a future need for higher debt. Thus, they should be treated as supplementary, not structural, sources of capital formation.