Govt can spend Rs 37,200-cr more and still meet deficit target

The government can spend an additional Rs 37,200 crore or Rs 372 billion more this fiscal year in infra investments or bank recapitalisation and still not miss the 3.9 per cent fiscal deficit target, the domestic ratings agency India Ratings said in a report today.

"Our estimate shows an additional fiscal space of Rs 37,160 crore or Rs 371.60 billion or 27 bps of additional GDP for the government in FY16 on account of both lower oil subsidy and additional revenue generated under some budget heads," India Ratings' principal economist and director for public finance Sunil Kumar Sinha said in a report.

The report attributed the surplus to the higher indirect tax collections which till July rose a healthy 39 per cent and a massive decline in crude prices.

It can be noted that with crude oil falling to a near seven-year low and trading around $43 a barrel.

This can lead to a total savings of Rs 18,750 crore in oil subsidies alone.

The report said due to multiple factors which among other things include the slowdown in China, nuclear deal with Iran and strengthening of US dollar, the crude prices will remain depressed.

Sinha said the government should use this additional revenue for higher capex on infrastructure and/or recapitalisation of public sector banks.

"If a part of the surplus, say Rs 10,000 crore or Rs 100 billion, is used for bank recapitalisation, its multiplier effect will significantly support growth and strengthen bank balance sheet, he added.

The agency also expects significant upside to the budgeted amount with respect to excise duty collection mainly because of the increase in the excise duty on petroleum products between November 2014 and January 2015 and withdrawal of excise duty exemption on auto and other consumer durables from January 2015.

The excise duty collection grew by 81 per cent in first quarter against the budgeted 21.7 per cent.

But the report warned such a higher growth in excise duty mop up may not be possible throughout the year.

It estimates the total additional collection could be Rs 53,300 crore or Rs 533 billion in 2015-16.

Similarly, the record high dividend payout of close to Rs 65,896 crore by the Reserve Bank, which is more than Rs 9,090 crore or Rs 90.90 billion from budgeted under the head 'dividend/surplus of RBI, nationalised banks and financial institutions'.