Disinvestment Drive, GST Rollout Reduces Pressure On Fiscal Arithmetic

The “successful subscription of Bharat 22 Exchange Traded Fund, launched in November 2017, has helped the government move closer to its FY18 non-debt capital receipt target of INR725 billion (disinvestment: INR465 billion, strategic disinvestment: INR150 billion, other listing: INR110 billion)”, believes India Ratings and Research (Ind-Ra). As of 24 November 2017, the government has raised in excess of INR523 billion.

Ind-Ra believes the government could exceed its capital receipt target in the remaining four months of FY18, depending on Oil and Natural Gas Corporation’s acquisition of government stake of 51.11% in Hindustan Petroleum Corporation Limited. The agency opines the disinvestment strategy has the potential to generate INR1 trillion and provide a buffer against lower surplus transferred by the Reserve Bank of India and the likely shortfall from the telecom sector.

While the states are expected to benefit from a committed 14% YoY growth in state revenue following the implementation of the Goods and Services Tax (GST), Ind-Ra believes the central government’s finances are likely to have an adverse impact of INR110 billion. However, the collection of taxes under the GST is encouraging and likely to further improve revenue collection and return filing compliance.

Ind-Ra believes front-loading of capex, which resulted in faster capex growth in the initial months of FY18, is now slowing down. At the same time, proposed bank recapitalisation and Bharatmala Pariyojana would not entail any additional budgetary allocation in FY18. The agency believes the expected revenue shortfall can be covered by higher non-debt capital receipts; however, this will not create fiscal space for additional spending.

About the Author

Soumyajit Niyogi
Associate Director, India Ratings and Research