Spectrum sale can help meet FY17 3.5% fiscal gap target: India Ratings

Government can achieve 3.5% fiscal deficit target for 2016-17 from spectrum auction, says India Ratings ahead of the Union Budget amid concerns over the fiscal consolidation roadmap.

"There is a possibility of government making a windfall gain in its non-tax revenue account in case the spectrum sale takes place in FY17. This may help the government to adhere to 3.5% fiscal deficit target of FY17, despite the burden of implementing seventh central pay commission award," it said in a note.


Implementing the recommendations of seventh pay commission, suggesting 23% hike in government staff's salaries, is expected to dent the fiscal math by 0.6% of GDP, which has resulted in high speculation over the strategy Finance Minister Arun Jaitley adopts in the Budget 2016-17, to be presented on Monday.

Some analysts are saying that the government may yet again opt for stretching the target, and pegging 3.8-3.9% as the likely number.

The domestic ratings agency said that the Indian industry will also be keenly looking at the fiscal stance of the government, specifically for details on how additional spending can result in more capital investments.

It flagged that while capital expenditure increased in FY15's revised estimates, it is still stuck at 1.7% of the GDP and there is a need to push it to 2%.

It said there is a likelihood of fiscal slippage in the current fiscal to 4.1% (as against the targeted 3.9%) due to lower than anticipated GDP growth.

The ratings agency said that at an absolute level, the government will be able to get the fiscal deficit at Rs 5.6 trillion (Rs 5.6 lakh crore), but the lower GDP growth will push the number higher in percentage terms.

It is "critical" for providing additional budgetary support for the recapitalisation of the public sector banks, which are a backbone of the economy, it said.

The 27 state-run banks need Rs 3.7 trillion in capital between April 2017 and March 2019 to meet the Basel-III capital adequacy norms, it further said.

"A higher budgetary support would be critical for the health of PSBs, particularly when their internal accruals are low, equity valuations have eroded and the risk of further slippages due to their exposure to highly levered corporates is high," it said.

With commodity prices being depressed, Ind-Ra advocated protectionist measures to help the ailing companies.

The infrastructure sector is likely to be a priority, but the government needs to provide alternative avenues for infra funding, an increase in the fund allocation for highways, a framework for revival of stalled projects and a road map for the road regulator, it said.

For the auto sector, India Ratings said the budget may entail a provision for introduction of a "scrappage" scheme for commercial vehicles and a reduction in excise duty on large cars and SUVs.