The Planning Commission may suggest pushing the Finance Ministry’s current fiscal year plan of strengthening public sector banks to the next fiscal.
However, it feels that there should not be any cut in allocations for flagship programmes.
The Government provided Rs 14,588 crore in the Budget for bank recapitalisation during 2012-13. This money aims to help banks to meet the required capital adequacy norms under the current and Basel III norms. The implementation of Basel III will begin on January 1, 2013 and will be fully phased-in on January 1, 2019.
However, target capital ratios and deductions from Common Equity will be fully phased-in and implemented as on March 31, 2018.
“As a part of expenditure reforms, as suggested by the Kelkar Panel, the Planning Commission feels that the first expenditure the Finance Ministry will sacrifice this year could be bank recapitalisation. The Commission is considering suggesting this to the Ministry,” a senior Government official told Business Line .
Since, this is part of the Plan expenditure, it needs approval from the Planning Commission before spending, he added.
The Kelkar panel had said that with a view to keep the deficit at an acceptable level, there is a need to take proactive measures to keep the Plan expenditure under check.
“In our assessment, through proper prioritisation and efficient use of available resources, the saving under Plan expenditure can be increased by another Rs 20,000 crore. This can be easily done by reallocations across schemes,” it added.
The move to defer the recapitalisation has come at a time when the Finance Ministry is reviewing budgeted expenditure of various Ministries and is also planning to defer some expenditure to the next fiscal year.
Even the Economic Affairs Secretary Arvind Mayaram, in an interview to the Reuters news agency in Mexico City, said, “Those expenditures that can be moved to the next year would be moved, instead of being done this year.”
These moves are significant as the Finance Ministry has decided to keep the fiscal deficit to 5.3 per cent. Normally fiscal tightening implies more cut in non-plan expenditure.
However, D.K. Pant, Director and Head of Public Finance with India Ratings and Research, says “Globally fiscal consolidation target is normally achieved at the cost of plan/capital expenditure and India is not an exception.”