Kotak hopeful of govt meeting fiscal deficit target

The FM needs to finds ways to increase revenue and not just cut expenditure

Differing with many analysts and rating agencies, Kotak Mahindra Bank Director Uday Kotak has said the fiscal deficit target of 4.1% 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% 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 Institute of Company Secretaries of India programme held here over the weekend.

Finance Minister Arun Jaitley has walked his predecessor P Chidambaram's fiscal roadmap and reiterated the fiscal gap at 4.1% of GDP for this fiscal and at 3.6% for next and 3% for FY 2017.

Chidambaram had in the past two fiscals bettered the budgeted fiscal deficit targets by cutting plan expenditure to and also by pushing back subsidy payments to the next fiscal.

While in FY2013, he had brought fiscal gap to 4.9% from a budgeted 5.6%, in FY 2014, he brought it down even below his own revised estimate of 4.8% to 4.67 percent.

"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.

Rating agencies like S&P, Fitch and Moody's said with no roadmap on subsidy reduction and no chance of a 20% 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% 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%.

On government sticking to holding majority stake in the state-run banks, even as it projects that banks will have to raise a whopping Rs 2.4 trillion 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%, but as more capital is required by them, the challenges will come in the future," he said.

The government shareholdings in its 26 banks vary between 56.26 to 88.63%. While in the largest lender SBI, it holds 58.60%, in the second largest state-run lender Punjab National Bank, holds the government holds 58.87%.