Differing with many analysts and rating agencies, Kotak Mahindra Bank Director Uday Kotak has said the fiscal deficit target of 4.1 per cent for this fiscal is achievable provided the Finance Minister finds ways to increase revenue and not just by cutting expenditure.
“I am enthused by the 4.1 per cent fiscal deficit commitment and I feel if we achieve that, then it will be great. I hope it will happen by increasing revenue rather than by cutting expenditure,” Kotak told PTI on the sidelines of the Institute of Company Secretaries of India programme held here over the week-end.
Finance Minister Arun Jaitley has walked his predecessor P Chidambaram’s fiscal roadmap and reiterated the fiscal gap at 4.1 per cent of GDP for this fiscal and at 3.6 per cent for next fiscal and 3 per cent for FY 2017.
Fiscal deficit targetsChidambaram had in the past two fiscals bettered the budgeted fiscal deficit targets by cutting the plan expenditure and also by pushing back subsidy payments to the next fiscal.
While in FY2013, he had brought fiscal gap to 4.9 per cent from a budgeted 5.6 per cent, in FY 2014, he brought it down even below his own revised estimate of 4.8 per cent to 4.67 per cent.
“There may be some turbulence as we have seen during the last few years, but the future is bright. I actually feel that we are in for good times,” Kotak said.
Sovereign rating
Rating agencies like S&P, Fitch and Moody’s said with no roadmap on subsidy reduction and no chance of a 20 per cent budget tax mop-up, Jaitley’s fiscal targets looked doubtful and therefore they insisted that the budget proposal has no bearing on the sovereign rating, which is just one notch above the junk status.
S&P has, in fact, had warned that it would not resist itself from revising the BBB- rating if the government fails to lift the sub-5 per cent growth in the past two years.
Many analysts have also termed the fiscal target “too ambitious” and said the year will close with 4.5 per cent.
Capital requirements
On government sticking to holding majority stake in the state-run banks, even as it projects that banks will have to raise Rs 2,40,000 crore to meet the Basel III norms, Kotak said ultimately the government will have to find a long-term solution to the state-owned banks’ capital needs.
“My view is that ultimately we will have to find a long-term sustainability solution to the state-owned banks.
Right now, most banks have headroom to come down to 51 per cent, but as more capital is required by them, the challenges will come in the future,” he said.
The government’s shareholding in its 26 banks varies between 56.26 per cent and 88.63 per cent. While in the largest lender SBI, it holds 58.6 per cent, in the second largest state-run lender Punjab National Bank, the government holds 58.87 per cent.