Mumbai: The government can spend an additional Rs 37,200 crore more this fiscal year in infra investments or bank recapitalisation and still not miss the 3.9 percent fiscal deficit target, the domestic ratings agency India Ratings said in a report Wednesday.
"Our estimate shows an additional fiscal space of Rs 37,160 crore 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 percent 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 USD 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, 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 percent in first quarter against the budgeted 21.7 percent. 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 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 from budgeted under the head 'dividend/surplus of RBI, nationalised banks and financial institutions'.
On August 14, the Reserve Bank had paid a dividend of nearly Rs 65,896 crore to the government, the highest ever from the central bank in its 80-year history, and 22 percent more than it paid last year. This was also the four-times more than in the past four years.
But the report has warned of some slippages as well with the most of it coming from disinvestment front. Against the target of Rs 69,500 crore so far it could collect only around Rs 13,000 crore. And with the market going the way it is it is unlikely that the target is more likely to be missed than met.
The report also warned that the food subsidy may again overshoot the budgeted amount by Rs 4,480 crore.
Similarly, the government has been failing to meet its direct tax mop -up so far. With banks and other large corporations bleeding, this will be an uphill task for the revenue department.
The net direct tax collections grew a modest 6.44 percent against a target of 18 percent, in the June quarter, raising doubts over the ambitious Rs 6.7-trillion target set for the current fiscal year. In absolute terms, this was Rs 89,705 crore against Rs 84,274 crore a year ago. In Q1 of last fiscal the growth rate was a whopping 47 percent.
While personal income tax grew at a healthy 18.5 percent to Rs 46,903 crore in Q1. Corporation tax inched up only 7.8 percent to Rs 76,115 crore and wealth tax jumped 50 percent to Rs 48 crore. But securities transaction tax slipped 2.8 percent to Rs 926 crore during the first quarter.
Gross direct tax collections grew 11.52 percent to Rs 1,23,993 crore from Rs 1,11,183 crore. Last year, gross direct tax mop-up grew 6.77 percent in the first quarter.
