How is centre faring on its non-tax revenues, divestment targets in FY23

The total non-tax revenue target for the year is Rs 2.69 trillion, while that for disinvestment is Rs 65,000 crore

After years of falling short of budget targets, there is actually a sense in the government this time that the divestment target of Rs 65,000 crore could be met, a sort of cautious optimism, largely due to the centre planning to sell its residual stake in Hindustan Zinc Ltd.

However, when it comes to dividends from state-owned enterprises, the expectation is clear: oil and gas companies contribute a major chunk, however they may not be able to pay dividends because of how crude oil prices have impacted them. And hence, public sector undertaking (PSU) dividends are likely to fall short compared with the budget estimate (BE) of Rs 40,000 crore.

A shortfall is also possible in the case of dividend/surplus from the Reserve Bank of India (RBI), state-owned banks and non-banking financial institutions (NBFCs).

All of this means that in the face of massive food and fertiliser subsidies this year, very buoyant tax revenues and cutting of non-essential expenditure may be the only way to contain fiscal deficit for FY23 to 6.4 per cent of the gross domestic product (GDP).

The total non-tax revenue target for the year is Rs 2.69 trillion, compared with the FY22 revised estimate of Rs 3.14 trillion, and FY22 BE of Rs 2.43 trillion. Some of the biggest contributors to non-tax revenue are dividends from PSUs, dividends from RBI, PSBs and state-owned NBFCs, and revenue from telecommunication services, including spectrum and licensing fees. Proceeds from divestment and privatisation are technically considered ‘capital receipts’ and not non-tax revenue.

“Oil marketing companies have been facing under-recoveries due to high-crude prices. The state-owned oil and gas production companies have benefited from prices, but are paying windfall tax. Hence healthy dividends are not expected from them,” a top government official told Business Standard.

“We are expecting a shortfall in PSU dividends,” the official added.

It is one of the public policy’s worst-kept secrets that while officially the government has ‘decontrolled’ prices of petrol and diesel, the likes of Indian Oil, Bharat Petroleum and Hindustan Petroleum can still be nudged to hold retail prices, something which officials admit to in private. Such instances are very rare and usually take place when oil prices spike for sustained periods, as has happened this year due to the war in Europe.

“PSUs are subject to global forces. Because there are so many supply-side bottlenecks, thinking that PSU dividends would be buoyant would be unrealistic,” said D K Srivastava, chief policy advisor at EY India.

The expected shortfall in dividends from PSBs and NBFCs is because the RBI, for its fiscal year ending March 2022 (which will reflect in the centre’s current fiscal year), transferred Rs 30,307 crore as dividends, much lower than expectations. Last year, the dividend transferred was Rs 99,122 crore, because of which the total proceeds were substantially higher than FY22 BE (see chart).

 

On divestment, officials see the FY23 BE of Rs 65,000 crore as a much more achievable figure than in previous years, if things go according to plan. So far this year, the Department of Investment and Public Asset Management (Dipam) has already garnered Rs 24,543.7 crore through offers for sale, initial public offerings (IPOs), and share buybacks. This includes Rs 20,516 crore from the IPO of public sector behemoth LIC.

Tuhin Kanta Pandey, Secretary Dipam, told Business Standard that while IDBI's stake sale and Concor's privatisation will be completed only in the next fiscal year, the centre is counting on the sale of its minority stake in Hindustan Zinc and privatisation of Shipping Corporation to meet the asset-sale target.

"We hope to complete the sale of the residual stake in HZL. Shipping Corp also we could think of closing, as the demerger is in an advanced stage," Pandey said. At current market capitalisation, the government's stake in HZL is worth nearly Rs 34,400 crore.

The stake sale in IDBI Bank is expected to be completed this year, and even without a premium, the Centre could garner upwards of Rs 13,900 crore from that transaction. As reported recently, the centre is also keen on pending privatisation plans, and Dipam will hold a pre-expression of interest (EoI) roadshow of prospective bidders this week, to gauge investors’ interest in the privatisation of Container Corporation of India (Concor).

“We have a pipeline, and work is going on for a number of divestment processes, which have already gotten the approval from the Cabinet. We are hopeful of meeting the target,” said a second government official.

“Ultimately, the fiscal balance will depend upon buoyancy of tax revenues, and non-tax revenues may not be that big a contributor,” said EY’s Srivastava.

The two big expenditure items this year, on account of the geopolitical shocks caused by the war in Europe, are food and fertilizer subsidies. On account of multiple extensions to the PMGKAY, the food subsidy burden for FY23 could rise to a massive Rs 3.32 trillion, from a budgeted target of Rs 2.07 trillion, not including any savings on lower procurement costs.

Meanwhile, fertiliser subsidies could rise to Rs 2.5 trillion from a budgeted Rs 1.05 trillion, on account of higher natural gas and input costs.

As reported earlier, the finance ministry has asked other ministries and departments to identify and cut non-priority spending in order to meet the FY23 fiscal deficit target.

The centre’s gross tax collections for FY23 till October 8 stood at Rs 8.98 trillion, some 23.8 per cent higher than collections for the same period last year. Goods and Service Tax (GST) proceeds for September soared 26 per cent to Rs 1.47 trillion, on account of rising demand, higher rates, and greater tax compliance. Collections from the nationwide tax remained above the Rs 1.4 trillion mark for the seventh straight month during the month, continuing to display very high buoyancy.