IDS-II to fund Pay Commission hikes, PSU bank recap: BofA-ML

The second income disclosure scheme (IDS) will help contain the 2017-18 fiscal deficit at 3.5 per cent of GDP, same as the current financial year, even while funding 7th Pay Commission hikes and recapitalisation of state-owned banks, says a report.
According to Bank of America Merrill Lynch (BofA-ML), the second income disclosure scheme (IDS-II) will fetch about Rs 1,000 billion (Rs 1 lakh crore)/0.7 per cent of GDP in additional taxes.
"This should allow Finance Minister Arun Jaitley to hold the FY18 fiscal deficit at 3.5 per cent of GDP - same as FY17's - and at the same time fund the 7th Pay Commission and recapitalise PSU banks, without cutting back on public capex," it said.

The government announced on December 16 IDS-II which will run till March 31. Under this scheme, black money hoarders can come clean by paying 50 per cent tax on bank deposits of junk currencies made post demonetisation.
For those holding unaccounted cash, it offered new tax evasion amnesty scheme wherein 50 per cent tax will be charged on declarations and quarter of the total sum be parked in a non-interest bearing deposit for four years.
The global brokerage firm noted the demonetisation shock looks set to spill over to January and perhaps, even February.

"We estimate that each month of disruption costs 0.3-0.5 per cent of GDP. This reinforces the 80 bps cut to 6.9 per cent in our FY17 growth forecast," the report said adding that a 25 bps rate cut is likely on February 8 as old series GDP growth is already struggling at 4.5 per cent.

On December 7, RBI kept interest rate unchanged despite calls for lowering it while slashing the economic growth projection by half a per cent to 7.1 in the first policy review post demonetisation.
The next monetary policy meet is on February 8.