The Union Finance Minister has reason to both feel happy and worried. There have been considerable savings on account of subsidy slippages and earnings through spectrum sale. But there still are strains on revenue generation
In the wake of the recently concluded spectrum auction yielding around Rs 32,000 crore less than the budgeted amount of Rs 64,000 crore for the current year, Union Minister for Finance , Arun Jaitley exuded confidence that this would not come in the way of his achieving the fiscal deficit target of 3.5 per cent of GDP set for the year.
Jaitley’s confidence stems primarily from the success of the Income Declaration Scheme (IDS) announced in the Budget for 2016-17 and launched on June 1, 2016, with a tenure of four months ending this September 30. Under the IDS, concealed income of Rs 65,250 crore has been declared. This will yield additional tax revenue of Rs 30,000 crore at rate of 45 per cent (including 30 per cent tax, 7.5 per cent surcharge and 7.5 per cent penalty), which was not accounted for in the Budget.
The proceeds from the IDS more or less compensate for the loss from spectrum auction. But, there are other areas too wherein significant deviation from the Budget estimate is imminent. The Government will need to tread carefully and be well prepared to immunise the Budget against their destabilising effects.
First, in regard to divestment of Government equity in public sector undertakings (PSUs), Jaitley had projected a receipt of Rs 56,500 crore, including Rs 20,000 crore from ‘strategic’ divestment (sale of sizeable shares to a private investor entailing proportionate transfer of ownership and management control). So far, not even a single ‘strategic’ divestment has happened.
As per recent reports, six PSUs have been identified for sale in this category. However, considering the long-drawn process involving preparations and decisions at multiple levels culminating in an approval by the Union Cabinet, it is unlikely that divestment will get consummated in any of these undertakings before this year end.
Second, the Government is committed to re-capitalise public sector banks (PSBs) reeling under unsustainable level of non-performing assets (NPAs). Towards this end, in the Budget for 2016-17, it had made an allocation of Rs 25,000 crore. This was in line with a roadmap announced in August 2015, for capital infusion of Rs 70,000 crore over four years: 2015-16 to 2018-19.
Since then, the capital requirements have risen due to PSBs having to clean up their balance sheets following an order from the Reserve Bank of India (RBI) and a consequential surge in bad loans and provisions against these. At the time of Budget presentation, the Finance Minister had pledged to give more but did not make the requisite additional provision.
Third, the Budget had provisioned Rs 70,000 crore on account of implementation of the Seventh Pay Commission recommendations for Union Government employees and pensioners. This is Rs 32,000 crore short of the requirement estimated at Rs 1,02,000 crore.
Taken together, slippages in the mentioned three areas would lead to a shortfall of about Rs 60,000 crore to Rs 70,000 crore. From where will the Government garner surpluses to offset this?
The saving in subsidy on LPG (liquefied petroleum gas) and kerosene due to continuing low crude price and refined products, besides the elimination of fake beneficiaries, has already been captured in the Budget provision (Rs 27,000 crore). The directions given to oil marketing PSUs to increase the price in small doses every month will yield a small saving of Rs 2,000 crore. On fertiliser subsidy, however, there is scope for saving.
Addressing the 9th Global Agriculture Leadership Summit on September 8, 2016, Union Minister for Fertilisers Ananth Kumar stated that neem-coating of urea has resulted in the stoppage of urea’s diversion for industrial use and smuggling to neighbouring countries. Taking diversion to be about 30 per cent and the Rs 51,000 crore provision for urea subsidy, this should yield saving of Rs 15,000 crore (subject to the Minister’s claim being correct).
Further, last year, Team Modi had got the Qatar Government to revisit and revise the long-term agreement for supply of LNG, resulting in a 50 per cent drop in the price — from around $13 per million Btu to $ 6.5 per million Btu. The revised price is applicable from January 1, 2016. This would reduce fertiliser subsidy by about Rs 6,000 crore in the current fiscal.
But these savings are overshadowed by a whopping pending subsidy dues of Rs 45,000 crore (according to the Fertiliser Association of India) from 2015-16, which have not been provided for in the current fiscal’s Budget. If the Government yields to pressure from industry to clear these dues then, will be huge slippages under this head, even after accounting for the savings.
Another buffer could be indirect taxes which have shown buoyancy thus far. During April- August, 2016, net revenue collections has increased 27.5 per cent over April -August 2015, to Rs 3,36,000 crore. Net excise revenue has increased by 49 per cent to Rs 1,53,000 crore, whereas net service tax is up by 23 per cent, to Rs 92,000 crore. Yet, till August, only 43.2 per cent of Budget estimates has been achieved. If this trend continues, one can at best hope for compliance with target but no surplus.
On balance, it would appear that the Finance Minister is on a difficult wicket. He will need all the skill at his command to manage the demands and the shortfalls.
(The writer is a public policy analyst)
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