1. No fiscal slippage by Centre in FY17

No fiscal slippage by Centre in FY17

Despite calls from many quarters, including from sections within the government, to slacken the fiscal consolidation road map in the short term and make available funds for more public investment, the Centre is likely to stick to the demanding fiscal deficit target of 3.5% of the GDP for 2016-17, according to official sources, reports Prasanta Sahu in New Delhi.

By: | Updated: February 1, 2016 2:16 AM
7th pay commission

The Centre’s boost to capital spending in FY16 has yielded result as public investment and private consumption powered the 7.2% economic growth in the first half of FY16 despite weak demand and negative exports growth. (Thinkstock)

Despite calls from many quarters, including from sections within the government, to slacken the fiscal consolidation road map in the short term and make available funds for more public investment, the Centre is likely to stick to the demanding fiscal deficit target of 3.5% of the GDP for 2016-17, according to official sources, reports Prasanta Sahu in New Delhi. The Budget managers reckon that the low global prices — most forecasters opine that until 2017, the prices won’t harden — would help them in two ways: A sharply reduced subsidy bill on oil and, to a certain extent, even on fertilisers and substantial additional revenue from excise duty hikes on diesel and petrol.

The series of excise increases on the two fuels since early November are expected to fetch around R17,000 crore in the current fiscal and close to R70,000 crore in the next fiscal.

The government also has the option of raising these taxes further in the course of 2016 to mop up additional revenue.

fiscal

This apart, the Centre intends to boost its non-tax revenue and non-debt capital receipts by auctioning huge quantum of premium 700 megahertz band of airwaves the April-June quarter itself and with a determined push to disinvestment. These steps, it feels, would counterbalance the Seventh Pay Commission and OROP bill of R1 lakh crore.

Given that the nominal GDP growth for 2016-17 could be around 8% roughly the same as estimated for the current year, the tax buoyancy could be adversely impacted but the government could hike the excise rates on many commodities whose prices remain low and even increase the service tax rate further, the sources said.

Noting that the IMF estimate that India’s consolidated fiscal deficit grew from 7% in 2014 to 7.2% in 2015 and the fact that the UDAY scheme state electricity boards would make it difficult for states to shrink their deficits, RBI governor Raghuram Rajan last week spoke against the option of fiscal expansion to push growth at this time. “Unfortunately, the growth multipliers on government spending at this juncture are likely to be much smaller (than needed to outweigh the additional debt from fiscal expansion), so more spending will probably hurt debt dynamics,” Rajan said.

The Centre’s move to maintain the current fiscal road map, however, comes at a time when even global rating agencies have appreciated the possibility of slight deviations from it. Moody’s recently said a slight upward or downward movement in the targeted fiscal deficit numbers will not make any impact on India’s sovereign ratings in the near term. “India’s fiscal position is very weak. Even if deficits targets are met, the fiscal position will be weaker. So, even meeting the target is not going to do much for the ratings and a slight miss is likely to do with context rather than policy action,” Moody’s associate managing director for sovereign ratings Atsi Sheth said.

Under the reserve price announced by the Telecom Regulatory Authority of India on Wednesday, the Centre could garner decent amount in 2016-17, depending on the financial capability and appetite of telecom operators for the spectrum.

Although it is almost certain now that the FY16 ambitious disinvestment revenue target of R69,500 crore could be missed, the Centre could adopt a more robust actionable plan to sell stakes in PSUs, privatise some PSUs and sell a portion of its SUUTI (Specified Undertaking of Unit Trust of India) stake in Axis Bank. Besides, real estate of some of the PSUs could be monetised.

Among other measures, the recent diktat by the Centre mandating PSUs to pay a uniform 30% of their profit after tax (up from 20-30% in recent years) as dividend and rationalisation of centrally sponsored schemes (from 66 to 30) would help improve the government’s finances. The government is also in dialogue with the Reserve Bank of India for a special dividend and a decision in this regard could be taken after consultations with the central bank on the dividend policy are completed. The Centre is eying a portion of R2.43 lakh crore that the RBI has kept in its internal reserves over the years. This year, RBI paid R65,896 crore as dividend, up 25% from last year and with the special dividend, the amount next year could be much higher.

As many of the headwinds to growth could continue, the government might maintain the public spending tempo in FY17. The Centre’s boost to capital spending in FY16 has yielded result as public investment and private consumption powered the 7.2% economic growth in the first half of FY16 despite weak demand and negative exports growth.

“For adhering to the fiscal deficit target next year, a lot depends on what happens to international oil prices and what happens to domestic growth,” said N R Bhanumurthy, professor at National Institute of Public Finance and Policy. On the subsidy front, while fuel subsidy might come down next year from the level in the current fiscal year, the Centre’s food and fertiliser subsidy bill may not follow suit due to likely payment of arrears, Bhanumurthy said.

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    1. Hemen Parekh
      Feb 1, 2016 at 7:18 am
      STRUCTURAL REFORMS ? Speaking at the Global Business Summit yesterday , Shri Arun Jaitley said : " We will introduce Structural Reforms in the forthcoming Union Budget " What is the current structure of Union Budget ? # SOURCES of REVENUE * Taxes ( Direct Indirect ) * Borrowings ( Domestic Foreign ) * / Leasing of ets ( PSUs Natural National Resources ) # DEPLOYMENT of REVENUE * Administrative Expenses ( ries / Pensions / Maintenance / Subsidies , etc ) * Interest ( Prinl Amount ) on borrowings * Developmental Expenses ( Creation of new ets / Infrastructure ) * Lending Broadly speaking , this is the current structure Most of the time , all that the successive Finance Ministers have done is to slightly " Increase / Decrease " the " Sources and / or Deployment " of the funds , here and there Once in a while , some Finance Minister , even introduced altogether NEW source or a NEW way to spend the revenue ! But so far , no one has attempted to change the FUNDAMENTAL STRUCTURE ! I wonder whether Shri Jaitleyji's BUDGETARY REFORMS would incorporate the following Structural Changes for which , I have sent to him ( and to most of his cabinet colleagues ), dozens of emails ? : * Total abolition of Personal Income Tax ( Revenue Loss of approx Rs 2.5 lakh*crores ) * Introduction of 2% Bank Transaction Tax - BTT ( Revenue Gain of Rs 15 lakh*crores ) * Decreasing Corporate tax slab-rates based on No of permanent employees ( to encourage job creation ) * Perpetual Amnesty Scheme ( no questions asked as to the source for CASH deposits in Jan Dhan Accounts , if funds from these Accounts are invested in Govt approved INFRASTRUCTURE SPVs ) So far , Rs 30,000 Crores have been deposited in Jan Dhan Accounts . With introduction of this REFORM , that figure will rise a thousand times to Rs 30,000,000 Crores , within one year ! These investments will generate 10 million jobs each year and raise our GDP to 10 % in 2016-17 ! * Transferring 10% of GST ( ie 1.8 % out of 18 % ) to PPF accounts of the buyers ( increase Domestic Savings ) * Embedding of RFID chips in Currency Note ( read Kurzweilai ) to solve twin problems of BLACK MONEY and CORRUPTION * Introducing " Budgeting By Objectives " ( instead of Monetary Allocations, setting Physical Targets for Ministers ) * Quarterly Performance Review of " Targets vs Actual Achievements " to be published on Govt web sites * Thru an Online Opinion Poll , involving citizens in framing of the Ministry-wise Physical Targets before the budget After second World War , German Economy was in shambles 68 years later , Germans are still thanking their then finance minister , Ludwig Erhard , for the miracle ("Wirtschaftswunder," German for "economic miracle") he brought through his " Out of the Box " reforms to revive the German Economy I hope Shri Jaitley displays similar courage on 29 Feb 2016 - even if he is not bothered being remembered or not ! ------------------------------------------------------------------------------------------------------------------------------- hemenparekh / blogs 31 Jan 2016
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