The "most important" fiscal deficit is projected as 3.5% of nominal GDP;
But in real terms, it may be 3.9-4.6%
In 2016 budget, apart from the projected fiscal deficit figure, there are absolutely nothing new, which may be unknown to our market.
Projected Fiscal Math of the Govt for FY:17 (approx in Rs. cr)
Total receipts:
Divestment in PSUS: 36000.00
Divestment in SUTTI: 20500.00
-------------------
Total divestment target: 56500.00 (up by 123% against FY-16 figure of Rs. 25312 helped by LICI)
Tel/Spectrum auction: 99000.00 ( up by 125% against FY:15-16 average figure of Rs.44000)
Gross tax revenue: 1221522.00 (up by 11.7% against FY-16 RE)
Capital receipts: 601038.00 (up by 3.8% against FY-16 RE)
------------------
Total receipts: 1978060.00 (up by around 10.8% against FY-16 RE of Rs.1785391)
Revenue deficit: 354015.00 ( against FY-16 RE of Rs.341589 and FY-15 actual Rs.365519)
Fiscal deficit: 533904.00 (against FY-16 RE of Rs.535090 and FY-15 actual Rs.510725)
Absolute nominal GDP: 15065010.00 (assuming 11% growth over FY-16 number against 8.6% RE)
FD/Nominal GDP: 3.5% (Approx projected for FY-17 against FY-16 RE of 3.9%)
Add: 7-PC impact: 102000.00 (For FY-17 Rs.73650 + Arrears Rs.18412 + OROP Rs.10000)
Less: Govt BE : (-) 40000.00 ( Govt allocated Rs.225000 cr against FY-16 RE of Rs.185000 cr)
---------------
Net 7-PC/OROP: 62000.00 ( under allocated for FY-17 7-PC/OROP impact excluding railways)
Pending FF subsidy: 100000.00 (approx amount of pending food & fertilizer subsidy bill)
---------------
Approx unaccounted:162000.00 ( pending expenses for cash accounting system instead of accrual)
Actual total FD: 695904.00 (reported fiscal deficit figure of Rs.533904 + Rs.162000 approx)
Actual FD/GDP: 4.6% ( after accounting the full 7-PC impact for FY-17 & FF subsidy burden)
3.9% (if only 7-PC impact is accounted properly for FY-17)
As
par various reports, total states & central gross/consolidated
fiscal deficit may be above 8% of the gross GDP for India.
For China,
its may be around 2.4% for 2015 (which they are planning to increase to
3.5% over the years to stimulate its economy).
Now, from the above math, its clear that some of the revenue and expenditure projections are made on the higher and lower side:
1. Divestment in PSUS/SUTTI:
Govt
projected a 123% hike from the actual figure of Rs.25312 cr to Rs.56500
cr. In the last year, Govt had assumed Rs.69500 cr through
disinvestment proceeds, but so far may have collected only Rs 25312 cr
(with the last minute NTPC OFS of Rs.5000 cr). But in this regard, LICI
came to the rescue of the Govt time to time in a major way and effectively, its can't
be called a disinvestment, because in true sense, LICI money is moving
from one arm of the Govt to another (i.e. transfer of assets).
Given
the present condition of the market, the projected disinvestment figure
is looking too ambitious and if the Govt resorts to distress selling,
it may lead to more price erosion in the market for the PSUS (say Coal
India, ONGC etc) and even for the SUTTIS ( like ITC, Axis Bk, L&T
etc). Govt should have thought of massive disinvestment, when market was
around 8500-9000 and sentiment was good and not in the current state
of "gloom & doom" scenarios, where 7000 may be the new normal of
the market in the foreseeable future.
Another
point that, some of the analysts are pointing out is the accounting
treatment of disinvestment proceeds (asset sales). As par IMF rules, any
kind of assets sales by a Govt needs to be treated as a "financing
item" rather than "revenue receipt" as the Indian Govt is doing now to
come up with a lower fiscal deficit figure. Its like a company selling its
assets/stakes and accounting the total proceeds into its revenue/PL,
rather than considering only the capital gain/loss portion. Any way, any
kind of receipt is a "revenue receipt", whatever be its origin and
that's the way the Indian Govt is accounting it for the years.
2. Ambitious telecom spectrum auction projection:
GOI
projected around Rs.99000 cr for FY-17 on this account against the
actual figure of Rs.57384 cr for FY-16 and Rs.30616 cr for FY-15 (total
collected for around Rs.88000 cr with an average of Rs.44000 cr in CY:2015-16).
Thus
GOI projected an increase of around 74% from the actual FY-16 figure
and a whooping 125% from the average figure of the last two years, which
may be much more on the higher side, considering the present state of
balance sheet issues of the telecos and the PSBS (who will fund ?).
Going by the recent commentary of some of the telecos after this
budgetary spectrum target, the figure of Rs.99000 cr may be an act of
over ambition.
3. Gross tax revenue (direct & indirect):
Projected
11.7% increase in GTR seemed to be normal and achievable, specially
backed by the black money window ("Fair & Lovely") scheme, various
cess on income taxes, service taxes, imposition of incremental ED on
petrol/diesel, import duty on crude oil etc. Virtually, GOI is making no
stone upturned in any indirect tax collection scope, but that is not
making India a place of "ease of doing business" either and gradually turning it
into a "high cost" economy, where cost of doing a decent business is quite high, if one consider the complex and high regulatory charges and comparatively high RRR.
As
par the GOI, various indirect tax measures may lead up to Rs.21670 cr in
additional revenue, while some direct tax measures may result in a loss
of Rs.1060 cr, leading to a net gain of around Rs.19610 cr in FY-17.
For
FY-17, direct taxes (personal income tax & corporate tax) are
estimated to increase by 12% and indirect taxes (service tax, custom
duty, excise duty, various cess etc) by 11% over the FY-16 RE.
Again,
in this GTR account, GOI is projecting an increase of around 11.7% against
projected growth in gross GDP of 11% in FY-17, whereas GDP RE for FY-16
of 8.6%.
As
par various reports, although it appears that India is growing around
7.5% in the new GDP methodology, the same is not supported by other high
frequency data like electricity consumption, railway freights, steel
& cement consumption, automobile sales data, bank credit growth, corporate earning numbers etc. As
par some calculation, India may be growing around 5.5% in the old series
GDP data. In that scenario, the current fiscal slippage may actually
end near 4.1% against RE of 3.9% for FY-16 (due to possible lower than
anticipated nominal GDP).
Analysts
are eager to see capex by GOI at 2% of the absolute GDP figure against
present level of 1.7% for any meaningful stimulation of our economy.
4. Capital receipts:
It consists of GOI borrowings, recovery of loans given by the GOI and external debt.
5. 7-PC & OROP impact not fully accounted for FY-17 :
Total
financial impact of 7-PC is around Rs.102000 cr for central Govt
employees with arrears and Rs.35562 cr for Indian Railways in FY-17.
Further, with its gradual implementation, various states may also revise pay
scales for its employees, which may jeopardize the the cumulative fiscal
deficit of the GOI and states further.
As
par the above calculation, GOI has not accounted for Rs.62000 cr for
the 7-PC/OROP impact in FY-17. If we took the railway 7-PC figure, then
it may be around Rs.98000 cr. Indian railway is expected to meet its own
7-PC impact by increasing various sources of revenues/asset
sales/monetization etc after its request for help/support was rejected by
the Govt. But it will be very difficult in the current scenario of bad
shape in the IR to meet the 7-PC impact.
It
appears that GOI may pass the 7-PC impact in a staggered way over the
next 3-5 years. But in that scenario, it has to pay arrears in the years
to come and that will also add to the expenditure side along with
fiscal deficit. So, in that case, the current fiscal deficit figure
appeared to be projected on the lower side.
As
long as the GOI do not come "clean" on this vital 7-PC transmission
issues, its full impact on the consumer demand and inflationary effect on
our economy will not be clear and RBI may not act in a ultra dovish way
with an expected rate cut of 0.50-1.00% in FY-17.
6. Pending food & fertilizer and petroleum subsidy:
GOI
follows cash accounting system, while corporate India (business)
follows accrual accounting system. In cash accounting, the GOI
acknowledges an expense, only after actual payment is made for that
expense item.
Now,
over the years, this lead to a situation, where the FFP subsidy bill of
more than Rs.100000 cr is pending at any point of time. The total FFP
bill is projected to fall by around Rs.7368 cr (2.9% ) to Rs.2.50 lakh
cr in FY-17 from RE of FY-16.
In
FY-17 BE, gross expenditure on food subsidy has the highest share of
Rs.1.35 lakh cr (54%), followed by fertilizer subsidy at Rs.0.70 lakh cr
(28%) and petroleum subsidy at Rs.0.27 lakh cr (11%).
It
may be noted that petroleum subsidy has fallen by over 50% from Rs.0.60
to 0.27 lakh cr from FY-15 to FY-17 (BE) amid steep decline in Crude
oil prices.
The
FF subsidy is projected to fall by around 3.3% from Rs.2.12 lakh cr
(FY-16 RE) to Rs. 2.05 lakh cr (FY-17 BE). In the absence of specific
expenditure break ups in the budget document, it is being presumed by
some analysts that more than Rs.1 lakh cr subsidy bill (around 50%) is pending at any
given point of time to FCI and the fertilizer companies.
Now,
in this scenario, FCI is borrowing constantly from the market backed by
its Govt structure (as FCI essentially is a GOI company), which is
equivalent to borrowing by GOI itself. This essentially tells that this
FF subsidy has already been incurred but has not been accounted so far
properly.
Thus
the current FY-16 RE fiscal deficit figure of 3.9% of GDP may be
revised later to around 4.1% (actual), if projected nominal GDP failed
to reach the target at FY-16.
The
projected FY-17 BE fiscal deficit figure of 3.5% of gross GDP may also
be on the lower side side looking at the unrealistic and overstated
projected receipts, while the expenditure has been understated. In
reality, as par accrual accounting system, the same may be around 4.6%
as calculated above and even if the GOI cash accounting system, it may
end up around 4.3%, if hopes of nominal GDP growth of 11% is not
materialized in reality at FY-17 with 50% of actual FFP subsidy.
Apart
from the above projected fiscal deficit figure of 3.5% , which
surprised the market with an imminent rate cut expectation, there is
little cause of cheers in the 2016 budget. Total expenditure is
projected to grow by around 10.8% with major emphasis on rural economy.
Cumulative infra spending is projected to be around 25% including
provisions of railway budget and some joint center-state programmes.
This figure underscores the Govt's twin targets of rural demand support
and investment acceleration and may be below street expectation.
In
one simple word, the 2016 budget may be termed as a "rural budget"
aimed at wooing the rural voters of the forthcoming series of state
elections with an eye on the 2019 parliament election after debacle of
BJP in Delhi & Bihar. In the coming five state elections, BJP is
expected to loose in all and up to 2019, it may loose 90% of the coming
state elections .
Even with the fading NAMO wave and significant
decrease in approval ratings with a visible sense of disappointment and
resurgent RG-V-2 (courtesy political strategist Prashant Kishore ??),
2019 general election may not be a smooth affair for NAMO unlike in
2014. In that scenario of political uncertainty and anarchy like situation, Nifty may gradually drift towards 6300-5800 instead to 8500-9200 by 2018-19.
Analytical Charts:
No comments:
Post a Comment