Focus on fiscal consolidation a positive: Naresh Takkar

The commitment to fiscal consolidation demonstrated by the government in the Union Budget 2016-17 is commendable, particularly abiding by the previously announced fiscal deficit target of 3.5 per cent of the gross domestic product, despite the burden arising from enlarged pay and pensions after the recommendations of the seventh pay commission) and the One rank, One pension scheme for the defence services.

Benefitting from various revenue augmentation measures, the overall tax revenue growth assumed in the Budget appears realistic. Moreover, declaration of undisclosed income and schemes for resolution of tax disputes may provide an upside. However, the targets for inflows from spectrum auctions, disinvestment and strategic divestment may be somewhat optimistic, which would affect the eventual fiscal turnout for 2016-17.

With limited fiscal space, the growth of capital spending is forecast at a modest four per cent in the Budget Estimates for 2016-17. Funds for bank recapitalisation have been retained at the 2015-16 level, despite the stress in the balance sheets of public sector banks. However, easing of limits placed on sponsor stake and foreign direct investment flows should help asset reconstruction companies to significantly augment their capital base, strengthening their capacity to take over stressed assets from banks.

A substantial portion of the announced increase in the central plan outlay would be funded through extra budgetary sources, including institutional finance and market borrowings to be raised by various central public sector enterprises, National Highways Authority of India, etc. Such market funding for the central plan outlay may push up bond yields in the broader market, though G-sec yields have cooled in the wake of a lower than expected market borrowing figure being announced by the government.

The writter is MD & Group CEO, ICRA Ltd