Govt may have to cut capex by Rs 70,000 cr: SBI Research

However, it notes, there are alternatives on both targets and fiscal consolidation

While corporate India wants a fiscal stimulus for the economy, the government might have to cut its capital expenditure by Rs 70,000 crore to ensure the financial year's fiscal deficit doesn't cross the targeted 3.2 per cent of gross domestic product (GDP), says SBI Research. 

To make up, it might rely on the investible surplus of public sector units, it says. As an alternative, the target might be postponed, by expanding it the deficit this year to 3.5 per cent of GDP. In this case, it might not resort to extra market borrowing, said Soumya Kanti Ghosh, chief economist with the SBI group.

“To manage the fiscal deficit, the government needs to cut expenditure substantially. We estimate Rs 70,000 crore from the capital expenditure,” he said, as there could be a shortfall of Rs 1.1 lakh crore in revenue receipts. Within revenue receipts, non-tax revenue might be Rs 38,000 crore less because of lower telecom spectrum proceeds, among others.

The note says there is still a way to compensate, with the investible surplus of public sector units. If one considers 10 per cent of aggregate investments of Rs 2,03,937 crore, along with Rs 1,08,063 crore cash with these units, the aggregate investible surplus in FY17 was Rs 1,28,457 crore. In FY17, however, cash balances declined 31 per cent, from Rs 1,55,835 crore in FY16, indicating much of the idle balances might have gone into investments in associates, subsidiaries and treasury assets.

“There are doomsday predictions currently that the government is going to have a big revenue slippage in 2017-18, which might impact the headline fiscal deficit numbers. However, such projections flunk the test of logical reasoning and are grossly misconstrued,” the report says. 

However, if the government decides to expand the fiscal deficit to 3.5 per cent, it might not have to go for extra market borrowings, because of small savings. The government accumulated Rs 40,491 crore in the National Small Savings Fund during the first five months of this financial year.

“It could thus receive Rs 1 lakh crore in small savings in FY18, and would be able to do a buyback of Rs 75,000 crore, contingent upon that...this implies the government would be able to meet its net borrowing target of Rs 3.48 lakh crore,” it adds.