Revenue outlook

Institutional set-up for disinvestment would have helped

The tax revenue numbers for 2016-17 in the Budget presented last Monday are, by all accounts, fairly conservative. Nominal economic growth for next year has been pegged at 11 per cent and gross tax revenues too are expected to grow marginally higher by 11.7 per cent. Meeting the target should thus, barring unforeseen events, be easier than in 2015-16, when the government’s gross tax revenues increased by over 17 per cent in even as nominal growth that year was only 8.6 per cent. Similar optimism, however, is not seen with regard to the government’s non-tax revenue projections, depending as they are on two major items – dividends and telecom revenues. Finance ministry officials have insisted these non-tax revenue targets are achievable. But a closer look suggests that more attention is needed to ensure that these revenue heads do not add to the government's stress in meeting deficit targets.

Telecom revenues of an estimated Rs 99,000 crore are crucially dependent on successful conduct of spectrum auctions and recovery of arrears. While auction proceeds can still be relied on, it is doubtful if the government can recover over Rs 20,000 crore of arrears that are stuck in court cases. A more knotty issue would be dividends from public sector enterprises – expected to grow 21 per cent next year, on top of a 40 per cent increase in the current year. The projected growth is riding on a government circular to public sector enterprises asking them to declare a dividend of 30 per cent, compared to 20 per cent earlier. The government’s revenue target under this head might thus be met, but in a manner which should raise many problematic questions. The government will justify the move on the ground that it is only exercising its legitimate right as the majority shareholder in these enterprises and the extra money is needed only to meet its fiscal deficit target. But the move could also undermine principles of corporate governance and the interests of minority shareholders in those enterprises that are listed. The sooner the government privatises them or puts in place an ownership structure that would not allow such mandatory ordering of dividend payment, the better would be their financial prospects.

The third big item of revenue for the government is from disinvestment of its stake in public sector enterprises. In spite of meeting less than half the disinvestment target set for 2015-16, the Budget for next year aims to mobilise Rs 36,000 crore through disinvestment and another Rs 20,500 crore by privatising a few public sector enterprises. The task of identifying the public sector companies for sale has been entrusted to the NITI Aayog. The department of disinvestment has also been renamed as the department of investment and public asset management. All these are laudable proposals. But meeting the disinvestment target will require more. In a stock market vulnerable to global headwinds, selling public sector companies or their shares is fraught with both economic and political risks. It is a pity that the Budget failed to recognise the enormity of this challenge and did not look for an independent institutional set-up to undertake the kind of ambitious disinvestment programme it has proposed for next year.