Government staring at large revenue shortfall:
In the current financial year, the government could report a 27% drop in revenue collection. The revised revenue estimate for FY21 is pegged ~Rs 19.33 trillion. It was at Rs 26.33 trillion in the previous fiscal.
The disinvestment collections have also been disappointing this year. At Rs 12,778 crore till December, it is far below the target of Rs 1.20 lakh crore set in the previous budget. The revenue deficit is on expected lines as the economy had hit the rock bottom in covid months. How is the government planning to fulfil this gap will be the crucial aspect to track in this budget.
Covid cess or super-rich tax are the immediate measures that could be introduced in the budget. But, we believe, the government must put up serious efforts into the disinvestment process.
We have seen the government actively selling its stake in PSUs through the IPOs. But, it is just a flash in a pan. The government must speed up the divestment process in large names like Air India, BPCL and PSU Banks. Only the divestment of these giants will be able to fill the revenue hole to an extent.
RBI's U-turn :
The Reserve Bank of India in its report 'state of the economy', have expected a v-shape recovery for India in FY22. From Shakespeare’s play Richard III, the RBI has quoted that 'soon the winter of our discontent will turn into glorious summer’.
The report lists several reasons for India to deliver V-shape recovery. First, India's vaccination program has made a smooth opening. Second, India has so far avoided the second wave of the virus. Third, the government is likely to announce a flurry of measures to improve spending in the budget. The RBI has also pointed that bank credit growth is showing signs of pick up. It is back to pre-covid levels above 6%.
The RBI's report has indeed painted a rosy picture. But, it comes across as a huge U-turn from its earlier stand. Not so long ago, the central bank, in its financial stability report (FSR), had feared a wave of stressed assets for the banking industry. The RBI had also noticed that after the initial months of recovery, the growth is now tapering off.
There is no doubt over the integrity of RBI's findings. Several prominent organizations have also adopted a similar view. Thet have predicted India to record double-digit growth in FY22. But, we would suggest the investors to look at the economy in its totality. And, not build in over-optimism based on one report.
Government procures Paddy, Punjab emerges as the biggest beneficiary:
Amid the ongoing farmer protest, the government has procured paddy worth Rs 1.08 lakh crore at MSP so far in this Kharif marketing season.
Food Corporation of India and other state agencies have procured 575.36 lakh tonne till January 20. It is an increase of 23.41% from 466.22 lakh tonne in the previous marketing year.
As per an estimate, ~82.08 lakh farmers are benefited from the ongoing procurement. It is also seen as a statement from the government that the MSP system will continue to exist and farmers' fears are misplaced.
It is also noteworthy that Punjab has emerged as the biggest beneficiary state. It has contributed 202.77 lakh tonne out of the total purchase of 575.36 lakh tonne.