The government has landed itself in a mess with its programme to recapitalise Air India and the public sector banks because it does not have the money and whatever is available has to be booked under the plan head.
The bill for the two would come to about R25,000 crore. If the government shows the two as plan expenditure for the current fiscal by revising the plan budget, as seems likely, the consequent rise in plan expenditure for the next fiscal will be far smaller. That is politically unacceptable.
For Air India, the government will provide about R6,600 crore as equity support while it will provide another R8,000 crore for State Bank of India. Along with the support required for other public sector banks, the sum for bank recapitalisation comes to about R17,000 crore.
To get a sense of the numbers, the Air India and public sector bank support will raise plan expenditure for this fiscal to about R4,65,580 crore. Then even if finance minister Pranab Mukherjee budgets for an R80,000-crore additional plan expenditure for the next fiscal (as per leaks from plan discussions), that will only look like an 11% rise from the new base.
Shown as expenditure for 2012-13 instead, the government will be forced to cut down its plan for social sector expenditure to accommodate this rise.
The choices are tough for Mukherjee as he would face flak either way. The ministry has held several rounds of discussions with the Plan Panel to sort out the mess. Informed sources said this was the big-ticket item that is holding up the finalisation of the gross budgetary support for the next fiscal.
In earlier years the government had often shown such one-time support under the non-plan head. But the finance ministry is now determined to show almost nil rise in non-plan expenditure, which the ministers have projected as consumption expenditure. In last fiscal, the budget showed a decline of 0.65 % in non-plan expenditure and the finance minister is keen to repeat the feat.
The alternative is to parse the sum between the two fiscals. The problem is that while the government has informed SBI that it will make the recap support in this fiscal, which the bank has already factored into its balance sheet, the equity support for Air India is equally critical. The state owned airline has already begun talks with LIC and mutual funds to sell its non-convertible debentures, for which Fitch Ratings has given its highest rating of AAA (SO) based only on the irrevocable twin government guarantees.
