1. Budget 2016: Capex outlay modest, may miss the mark

Budget 2016: Capex outlay modest, may miss the mark

Much of the non-tax revenue receipts, as estimated by the government, may not come in

By: | Published: March 1, 2016 1:48 AM

Even the relatively flat capex budget for FY17 proposed by the government might be in jeopardy, given that much of the non-tax revenue receipts may not come in as pencilled. The total capital expenditure of the government has remained virtually flat for FY17 at Rs 2.47 lakh crore compared with Rs 2.37 lakh crore in FY16, although it would appear that it has allocated larger spends across sectors.

Analysts pointed out that a huge chunk of resources had been channelled into subsidies — for food, fuel and fertilisers; the subsidy bill of R2.50 lakh crore in FY17 crore is virtually untouched at the levels of FY16 of R2.57 lakh crore. The allocation for defence, however, is up 13.6% at R1.62 lakh crore.

While the finance ministry team explained on Tuesday that consolidated capex — including the expenditure by the states — should be considered, given the larger devolution of taxes to the states, it is nonetheless a modest outlay.

The government is betting big on non-tax revenues to fund the expenditure; it has budgeted Rs 3.2 lakh crore about 25% higher than the Rs 2.58 lakh crore in FY16. Of this, spectrum sales are expected to fetch Rs 99,000 crore, but might actually end up with closer to Rs 60,000 crore. Moreover, the disinvestment and strategic sales target of Rs 56,000 crore might also be difficult to achieve. It would appear the government is looking to larger dividends to bail it out.

Additional revenues have been pencilled in from tax receipts. It has budgeted for a Rs 13.77 lakh crore in revenue receipts, of which R10.54 lakh crore would be the net tax revenues to the Centre.

The government has assumed a nominal GDP growth of 11% in FY17 with gross tax revenue growth of 11.7% and tax buoyancy assumptions of 1.1, which analysts believe are reasonable. The tax-to-GDP ratio is estimated on the conservative side at 10.8%, which is the same as FY16 levels.

To be sure, the government’s balance sheet for FY17 is somewhat bigger than it has been in recent years, in the sense that the the total outlay is nudging R20 lakh crore at R19.78 lakh crore, an increase of about 10.8% over FY16. While the Plan outlay is R5.50 lakh crore, a jump of 15.3% and non-Plan outlay is R14.28 lakh crore, an increase of 9%, much of it is on the revenue account.

By staying with the promised fiscal deficit target of 3.5% for FY17, the government has won itself credibility. This is despite the higher expenses on account of higher salaries based on the 7th Pay Commission’s recommendations and the One Rank, One Pension (OROP) scheme. However, the finance minister observed on Monday that the government would want to review the FRBM Act and opt for a range for the fiscal deficit, rather than a target. The gross borrowings of the Centre for FY17 are at a lower 4% of GDP compared with 4.3% in FY16, leaving public debt that much more comfortable. Due to the impact of lower nominal GDP growth, the overall net borrowings of the government has been reduced by R15,000 crore in revised estimated for 2015-16.

Tall target

* The government is betting big on non-tax revenues to fund expenditure, budgeting Rs 3.2 lakh crore
* Of this, spectrum sales are expected to fetch Rs 99,000 crore, but might actually end up with closer to Rs 60,000 crore
* The disinvestment and strategic sales target of Rs 56,000 crore might also be difficult to achieve

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