The spending cuts are inevitable at a time when a shortfall in receipts appears to look in the government’s face in FY20. However, it may not impact the economy much as public sector companies are expected to borrow aggressively, just as in FY19, to offset any impact on the economy due to lower spending, Motilal Oswal said in a report. “Notwithstanding massive receipt shortfall and related spending cuts in FY19, the adjusted fiscal deficit of the public sector (including selected CPSEs) was at seven-year high of 8.8% of GDP last year due to higher spending by CPSEs. There was, thus, no adverse economic impact in FY19,” Motilal Oswal said in a report released Thursday. Similar to FY19, most central PSUs are borrowing aggressively in FY20 too, which may almost entirely offset the impact of lower fiscal spending, Motilal Oswal EcoScope added.
In FY19, the Modi government fell short of Rs 1.3 lakh crore. “There is an almost unanimous belief that FY20 too might see a significant shortfall in receipts, leading to either spending cuts or breach of fiscal deficit target,” the report added.
Divestment target
Meanwhile, in a separate development, there are reports that the strategic sale of BPCL and ConCor may not be completed this fiscal, doubts have emerged on government meeting the budgeted fiscal deficit target. The government has not yet invited expressions of interest (EoI) for the two government companies, Financial Express reported, adding that it generally takes nearly four months from the stage of EoI to conclude divestment deals.
“Severe shortfall in overall tax revenues (both direct and indirect taxes) will be compounded by large shortfall in divestment proceeds. Deferral of spectrum-related payments by two years to provide relief to beleaguered telecom companies is already weighing heavily on fiscal finances. Fiscal deficit may miss the target by a wide margin raising concerns for bond yields which may spike further,” Ajay Bodke, CEO, PMS Prabhudas Lilladher said.
Source: Financial Express
