The government is unlikely to provide any funds to recapitalise public sector banks in this fiscal. Finance minister Pranab Mukherjee on Friday sought Parliament?s approval for additional net expenditure of R56,848.46 crore for the current fiscal, but none of it will be used to shore up capital in state-owned banks.
This demand comes over and above the first supplementary approved in August, which involved a net cash outgo of R9,016.06 crore. The additional R65,864 crore will raise government expenditure from the Budget estimate of R12,57,729 crore by over 5%, putting further pressure
on the already-stressed fiscal deficit numbers for the year.
Among the public sector banks, State Bank of India (SBI) has asked for a capital support of R10,000 crore, but the sum was recently whittled down to R3,000 crore according to DK Mittal, secretary, financial services. The total bank recapitalisation need for the banking sector is estimated at R18,000 crore for the current fiscal.
The bulk of additional spending ? R30,000 crore ? in the second supplementary will pay for under-recoveries of the oil marketing companies.
It is now unclear how the government will fund the capital needs of SBI, which is in urgent need of funds to boost its tier-I capital that has dipped below 8%.
The government supplementary also accounted for subsidies for fertiliser companies.
To meet its rising expenditure, the government has already raised its market borrowings target by R53,000 crore. The move announced in October rattled the government securities market, which is already coping with a glut in supply of government bonds. With R40,000 crore of disinvestment unlikely, and tax collections falling short of target, the government is in a jam.
During April-October this fiscal, net direct tax collections grew only 7.1% to R2.18 lakh crore. The Budget estimate for the entire year is R5.32 lakh crore. Indirect tax collections grew by 18.5% to R2.21 lakh crore in April-October. The full-year target is R4 lakh crore.
As news of the cash demand came in, government bond prices fell sharply on Friday while yields (which move inversely with prices) rose on Friday. Yield on the benchmark 10-year 2021 government bond jumped to 8.84% on Friday from the 8.79% recorded at Thursday?s close.
?Approval of Parliament is sought to authorise gross additional expenditure of R63,180.24 crore. Of this, the proposals involving net cash outgo aggregates to R56,848.46 crore and gross additional expenditure, matched by the savings of the ministries/departments, aggregates to R6,330.80 crore,? the introductory note for demand said.
The sum for the petroleum subsidy this time is in addition to the R23,640 crore that was earmarked in this year?s Budget. On account of the high crude oil prices in the world markets, and a sharp 18% depreciation in the rupee against the dollar since the beginning of this fiscal, oil companies are expected to incur a total loss of R1.3 lakh crore.
After the oil marketing companies, the next biggest expenditure is R13,778.93 crore for the department of fertilisers. Rising prices of imported fertilisers such potash and phosphorous and a weaker rupee have pushed up the subsidy bill.
Among others, R3,800 crore has been sought for the defence ministry, R2,297.52 crore for the ministry of consumer affairs, food and public distribution, R1,500 crore for the police and R1,030 crore for pensions.