Supplementary demand: Capital infusion into insurers, IDBI Bank part of extra Rs 21,246 crore spend

By: |
November 29, 2019 2:13 AM

The department of financial services will get an additional Rs 4,557 crore for infusion into IDBI Bank through recap bonds.

Capital infusion, IDBI Bank, LIC, 14th Finance Commission Award, Jammu & Kashmir, financial services, corporate tax ratesThe department of financial services will get an additional Rs 4,557 crore for infusion into IDBI Bank through recap bonds.

The Centre on Thursday sought Parliament’s consent for gross additional expenditure of Rs 21,246 crore, including Rs 2,500 crore for capital infusion into state-owned insurance companies. Net cash outgo from the new proposals aggregate to Rs 18,996 crore, as the balance extra spending is matched by savings and extra receipts. Besides, Rs 4,557 crore would be infused via off-budget means in IDBI Bank.

The department of financial services will get an additional Rs 4,557 crore for infusion into IDBI Bank through recap bonds. In September, the Cabinet had cleared a proposal under which IDBI Bank was to get Rs 4,557 crore from the
government which has 47.11% stake in the bank.

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State-owned LIC, which is the promoter of the ailing lender with 51% stake, was to pump in an additional Rs 4,743 crore to improve the bank’s capital position. The Rs 2,500-crore infusion into state-run insurance companies is aimed at helping their improve their solvency ratio.

However, the infusion is way below the Rs 12,000 crore that the DFS had sought. While the break-up of the allocation isn’t yet available, the funds are expected to be infused into three non-life insurers — National, Oriental and United — that the government has proposed to merge.

As per the supplementary demand for grant, the Centre will also provide a grant of Rs 8,821 crore to the Union Territories of Jammu & Kashmir and Ladakh in lieu of J&K State share of 14th Finance Commission Award. This includes share of revenue deficit grant of Rs 5,892.5 crore, local body grant of Rs 725 crore and SDRF of Rs 139.50 crore, besides Rs 2,064 crore as share of net proceeds of taxes for month of November and December, 2019.

The state of J&K was bifurcated into two UTs recently. The extra spending includes additional Rs 1,000 crore under the LPG scheme for poor households and another Rs 1,000 crore to be provided for creation of a special window for affordable and middle-income housing.

The additional expenditure proposed is unlikely to increase the Centre’s budget size of Rs 27.86 lakh crore for FY20 as the likely huge shortfall in tax revenues could be balanced with spending compression under other heads towards the end of the year.

In September, the government decided to stick to its budgeted gross market borrowing target of Rs 7.1 lakh crore for FY20 and the fiscal glide path, despite projecting a gross revenue forgone of Rs 1.45 lakh crore due to a sharp cut in the corporate tax rates. Approval for extra spending sought now doesn’t automatically necessitate any change in this stance.

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