Rahul Khullar: No big bang reforms

When expected buoyancy in tax revenues abates, governments start looking at non-tax revenues (NTRs) to bail them out. This was to be the year of NTRs. The demonetisation (DM) venture was expected to be a goldmine. There was talk of Rs 4 lakh crore of kala dhan being wiped out. This was expected to yield a bonanza in terms of Reserve Bank of India surplus transferred to the government. Sadly, no such luck.
 
The Economic Survey notes that NTRs in 2016-17 have been “challenged”. Shortfalls in spectrum and disinvestment receipts together with smaller dividends from public sector undertakings (PSUs) and banks (PSBs) have been the villains of the piece. The Economic Survey states that NTRs have suffered from “forecast optimism” (read gross overestimates). So, what should we expect in 2017-18?
 
Since disinvestment targets are hardly ever met, the heavy lifting will devolve on the rest.
 
Dividends from PSUs/PSBs are usually a reliable source of funds. Deflation has hit profits of both. The economic slowdown has added to the problem. And all this is without taking into account the adverse impact of DM.
 
PSBs are badly placed because provisions have pre-empted profits that could be distributed. Further, an earlier drawdown of dividends from cash-rich PSUs leaves so much less to draw down now. Though the government can arm-twist PSUs/PSBs into coughing up more dividends, this does not look likely in 2017-18.
 
The PSBs are particularly vulnerable. Little has been done to recapitalise them. And, the Budget’s Rs 10,000 crores is a drop in the ocean. There has been no other major announcement on how to deal with the problem. So, the NPA drag on PSBs (and the economy) lingers. And, more bad NPA news is on the way because of DM. 2017-18 should see more provisioning.
 
With little revival of animal spirits, we have a low-level equilibrium: banks with no courage to lend and prospective investors with no will to borrow.
 
Telecom can’t do much. The standard Rs 25,000 crore from licence/spectrum fees has been taken into account. Credit is being assumed for another auction in 2017-18. That is not good news. The failure of the 700MHz auction last year was a blessing. For, the telcos were at breaking point; they simply could not find the resources to buy. The precarious financial position of the major telcos persists, suggesting that an auction is best postponed. The recurrent refrain of twin balance sheet problems should have focused attention on this issue.
 
Last year’s renaming as the Department of Investment and Public Asset Management did little for either. There were no closure of sick enterprises and more dud investments were made in fertilisers by arm-twisting PSUs to finance the venture. There was not even a feeble attempt at management reform. Unsurprisingly, there were no strategic sales; the silver lining is that a decision has been taken for some PSUs. The decision to list PSUs is welcome; but, at best, it will yield revenues for a year, or more, hence. Off and on, there have been press reports about monetising assets (including land), but hardly any tangible action.
 
On the big bang surplus from DM, little is known, as nothing was said. That is not surprising because we are expected to believe that the RBI is still “counting the money”. The surplus transferred from the RBI is, right now, a complex variable contingent on the government’s ability to persuade the Governor and the RBI’s board.
 
The finance minister was in a tight corner. He had to have something to show for DM. Hence, the repeated emphasis on “long-term” benefits (that remained undefined). The rest could be (and is) business as usual. But here’s the thing. There has been little progress on substantive reform: be it of the PSBs, improving public asset management, or taking a serious look at the fragile nature of telco finances. It's one more year without any major reform, one year closer to 2019, and so much lower the probability of reform in the next two years. More’s the pity.

The writer is former Trai chairman