Disinvestment failures will not derail fiscal balance

by Manasi Swamy

Central Government arrested its gross fiscal deficit in the first eight months of 2021-22 at 46.2 per cent of its annual budgeted target. This is the biggest fiscal consolidation carried out by the government at least since 1997-98, the year when the Controller General of Accounts (CGA) started releasing the monthly data. The government usually exhausts more than 80 per cent of its annual fiscal deficit target by November. In the last four years, in fact, its deficit had overshot the annual target in the range of 12 and 35 per cent.

The government’s finances benefitted from improved revenue collections, both tax and non-tax. It managed to achieve 73.5 per cent of its budgeted net tax revenue target for 2021-22 in the first eight months of the fiscal. The government usually meets around 50 per cent of its annual tax revenue target in the first eight months. In the current fiscal, it garnered net tax revenues of Rs.11.4 trillion till November, 64.9 per cent higher than a year ago.

All major tax heads reported smart growth in collections. Among direct taxes, gross collection of income tax grew year-on-year by 47.3 per cent and that of corporation tax by 90.4 per cent during April-November 2021. This was mainly a reflection of increase in earnings of higher income individuals and bumper profits made by corporates. Number of tax filings didn’t show any increase. Among indirect taxes, customs duty collections nearly doubled from April-November 2020. This had an element of rate hike besides a surge in imports. Goods & services tax (GST) collections increased by 36.5 per cent mainly reflecting recovery in domestic demand, high inflation, increased online transactions and probably, even an increase in the market share of the organised sector. Excise duty collections rose y-o-y by 23.2 per cent during April-November 2021.

The government reduced excise duty on petrol by Rs.5 per litre and on diesel by Rs.10 per litre on November 3, 2021. This may lead to some weakness in excise duty collections going forward. Yet, we expect collections to exceed their budgeted target for 2021-22. Other major taxes GST, customs duty, income tax and corporation tax are also expected to overshoot their annual budgeted target by large margins. We project the government’s net tax collections in 2021-22 to exceed their full year’s target by Rs.3.6 trillion.

Non-tax collections have also been buoyant. These too will overshoot their budgeted target for 2021-22 by about Rs.579 billion. The government has set its non-tax revenue target for 2021-22 at Rs.2.4 trillion. It has already achieved 92 per cent of this in the first eight months of the fiscal year. We expect the government to receive good amount of final dividend from public sector units (PSUs), particularly when it is struggling to meet its disinvestment target.

The government has set an ambitious disinvestment target of Rs.1.75 trillion for the current fiscal. However, it has managed to mobilise only Rs.93.3 billion so far, according to the official website of the Department of Investment and Public Asset Management (DIPAM). The government is planning to garner Rs.900 billion by selling its 10 per cent stake in Life Insurance Corporation (LIC) through an IPO by March 2022. However, it has neither announced the date of the IPO not has it filed the draft red herring prospectus. The stake sale is still faces resistance from LIC employees. Besides, Shiv Sena union has also asked the government to keep the stake sale on hold till the recent alleged scam at IDBI, LIC’s subsidiary gets resolved. The issue regarding how much discount will be offered to LIC policy holders who participate in the IPO still pending. These things make the prospects of IPO getting launched in the current fiscal bleak. The government’s stake sale in Bharat Petroleum Corporation Limited (BPCL) also does not look possible this year. The government therefore may experience a huge shortfall of Rs.1.5 trillion in its disinvestment proceeds in 2021-22.

The government has budgeted for expenditure worth Rs.34.8 trillion for 2021-22. It spent Rs.20.7 trillion or 60 per cent of it during April-November 2021. A bulk of this was revenue expenditure, of the order of Rs.18 trillion, which amounted to 61.5 per cent of the revenue expenditure budgeted for the full year. Capital expenditure incurred during April-November 2021 was Rs.2.7 trillion, 49.4 per cent of the full year’s target.

The government recently received Parliamentary nod for additional expenditure of Rs.3.7 trillion in the current fiscal, which involves net additional cash outgo of Rs.3 trillion. The remaining is to be met from savings by various ministries and departments. The additional expenditure includes Rs.583.4 billion on fertiliser subsidy, Rs.498.1 billion for storage of foodgrain, Rs.220.4 billion to create rural jobs, Rs.140 billion for housing & urban affairs, Rs.78.1 billion for textile ministry schemes including cotton procurement and PLI and Rs.49 billion for police reforms. The Centre will also be infusing Rs.620.6 billion in to Air India Asset Holding Co Ltd, which holds the residual assets and liabilities of Air India after the privatisation of the airline and Rs.26.3 billion towards loans to Air India for recouping the advances from Contingency Fund of India.

We believe that the central ministries and departments would end up saving a lot more in 2021-22 than what the government estimates. We expect them to underspend by nearly Rs.1.3 trillion. Sixty per cent of the ministries spent less than 60 per cent of their full year’s budgeted expenditure till November 2021. It is unlikely that these ministries would be able to exhaust their annual expenditure allocation by March 2022.

Net cash outgo on public expenditure by the government in 2021-22 is expected to be around Rs.37.2 trillion, Rs.2.4 trillion higher than the expenditure budgeted for the fiscal year. Non-debt receipts, on the other hand, are expected to exceed their budgeted target by a lower Rs.1.9 trillion due to poor show on disinvestment front. Gross fiscal deficit therefore may exceed its budgeted target for 2021-22 by Rs.460 billion in absolute terms. But, as a proportion of GDP, the deficit is likely to be arrested at 6.8 per cent, the same as that projected in Union Budget 2021-22. Moreover, if the LIC IPO goes through this year, the government may succeed in arresting its gross fiscal deficit at 6.4 per cent of GDP.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.0 -0.8
Consumer Sentiments Index
Base September-December 2015
59.2 +0.3
Consumer Expectations Index
Base September-December 2015
60.6 +0.5
Current Economic Conditions Index
Base September-December 2015
57.0 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 21 Jun 21 Sep 21 Dec 21
New projects 2.36 2.74 2.25 2.51
Completed projects 1.17 0.74 1.18 1.52
Stalled projects 0.28 0.33 0.03 0.03
Revived projects 0.23 0.12 0.28 0.39
Implementation stalled projects 0.34 0.38 0.25 0.66
Updated on: 18 Jan 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 21 Jun 21 Sep 21 Dec 21
All listed Companies
 Income 15.1 39.2 27.9 15.7
 Expenses 7.4 38.6 27.3 17.2
 Net profit 337.8 142.5 52.6 9.3
 PAT margin (%) 8.8 9.0 9.6 19.5
 Count of Cos. 4,401 4,495 4,545 122
Non-financial Companies
 Income 17.8 56.1 36.1 18.0
 Expenses 10.7 57.1 36.6 21.6
 Net profit 222.4 199.3 59.5 3.5
 PAT margin (%) 9.0 8.5 8.8 18.2
 Net fixed assets 2.3 4.9
 Current assets 4.3 11.0
 Current liabilities 1.2 0.9
 Borrowings -4.5 12.2
 Reserves & surplus 11.7 12.4
 Count of Cos. 3,247 3,301 3,304 89
Numbers are net of P&E
Updated on: 18 Jan 2022 8:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.4 0.6 -1.5
 Expenses 13.8 0.4 -4.1
 Net profit 12.7 -6.9 62.0
 PAT margin (%) 2.0 2.1 5.7
 Assets 9.9 8.8 10.7
 Net worth 8.2 4.5 13.3
 RONW (%) 3.6 3.5 8.2
 Count of Cos. 32,530 31,471 11,634
Non-financial Companies
 Income 14.2 -1.2 -3.0
 Expenses 14.3 -0.9 -5.3
 Net profit 22.1 -21.1 49.3
 PAT margin (%) 2.8 2.3 5.3
 Net fixed assets 6.0 11.2 1.5
 Net worth 7.8 2.2 11.0
 RONW (%) 6.3 4.9 9.1
 Debt / Equity (times) 1.0 1.1 0.8
 Interest cover (times) 2.2 1.9 2.8
 Net working capital cycle (days) 74 81 80
 Count of Cos. 25,943 25,015 8,657
Numbers are net of P&E
Updated on: 18 Jan 2022 2:48PM