The Finance Minister has asked the Indian Parliament to approve an additional expenditure of around ₹21,000 crore during the financial year 2019-20 beyond what was provisioned in the Budget. Of this amount, ₹18,995 crore will be the supplementary demand from the exchequer while the remaining will be met from savings or unbudgeted revenues. A portion of this amount being asked for now will go towards funding IDBI Bank and the three government-owned insurance companies.
IDBI Bank is now owned by Life Insurance Corporation of India. The bank is currently under the restrictive prompt corrective action framework. To pull it out of this framework, the government is issuing recapitalisation bonds worth ₹4,557 crore. Similar recapitalisation bonds are being issued in the case of the insurance companies, National Insurance Co, Oriental Insurance and United India Insurance. The three insurance companies are going to be merged into one entity and the amount being infused will wipe out the losses on their books and also render the company solvent in terms of the margin stipulated.
It is also being clarified that of the ₹21,246 crore, ₹3,650 crore will be capital in nature and ₹15,346 crore revenue expenditure.
The fear that with the government making all these announcements in the past few months offering concessions to the industry and trade and revenue not picking up as expected, this extra outgo will definitely impact the fiscal deficit. The earlier commitment by the government to stick to the 3.3% level may not be feasible to achieve now, experts feel. The final figure may end up being 3.7 or 3.8%.
Finance Minister Nirmala Sitharaman stoutly defended her government’s managing of the economy in the Parliament. She pointed out to the opposition which was in power from 2004 till 2014 that the average fiscal deficit during the 2009-14 (UPA-2) 5-year period was 5.5% and the FRBM Act has been in existence since 2004. The FM is still to yield that the fiscal deficit will go beyond 3.3%.
On the GDP growth, the general sense among economists is that the financial year 2019-20 will end with a GDP growth of below 6%. The expectation is that the quarter ended September this year, the figure would be below 5% based on several indicators.