Govt asks PSUs to step up capex, dividends

Borrowing programme remains unchanged for now, but to be reviewed in December

The government on Thursday nudged state-owned companies to spend an additional ~25,000 crore as capital expenditure this fiscal year, above the budgeted combined capital spending target of ~3.85 lakh crore for the Centre and public sector undertakings (PSUs).

It also asked these companies to declare liberal dividend payments to the government.

Additionally, the Centre said it would borrow ~2.08 lakh crore during October 2017-March 2018. It had borrowed ~3.72 lakh crore during April-September.

While the full-year borrowing estimate of ~5.80 lakh crore is being adhered to for now (net borrowing at ~4.25 lakh crore), the borrowing programme will be reassessed in December, based on spending needs, according to a senior finance ministry official.

Net borrowing in the OctoberMarch period has been pegged at ~1.92 lakh crore.

These announcements come at a time when the Narendra Modi government looks to revive economic growth. There have been talks in the government regarding a possible stimulus package through higher capital spending to boost manufacturing and infrastructure and to create jobs.

On Thursday, Finance Minister Arun Jaitley held a meeting with secretaries of various ministries and top executives of state-owned behemoths, including ONGC, BPCL, HPCL, NTPC, SAIL, CIL, and HAL.

Later in the day, officials of the ministry and Reserve Bank of India (RBI) met to finalise the borrowing calendar for the second half of 2017-18.

“During the review, it was clear that all the ministries, departments and central public sector enterprises (CPSEs) are on track for their capital expenditure programmes except a shortfall for one or two PSUs. In addition, we might expect ~25,000 crore extra from authorities like the National Highways Authority of India and other state-owned companies,” Economic Affairs Secretary Subhash Garg said.

Of the budgeted capital spending target of ~3.85 lakh crore, ~3.10 lakh crore is the central government’s target, while the rest is supposed to come from PSUs. An additional outlay of ~25,000 crore will take this year’s capex to ~4.10 lakh crore.

Garg said the finance minister told PSUs and central departments that the pace of spending must continue and that Jaitley would conduct another review in November or early December.

“We also discussed the possibility of CPSEs using their low debt-equity ratio and also innovative instruments like investment trusts and others for financing their additional capital expenditure this year as well as in the future,” he said.

Garg said that the Centre’s capex budget remained unchanged for now, and so did the fiscal deficit target of 3.2 per cent of GDP. But, he did say that the government would relook its borrowing programme in December, and that raises the possibility of higher-than-budgeted spending by the Centre, and a fiscal expansion if the corresponding revenues are not realised. “An assessment (of the borrowing targets) would be made sometime in December after supplementary demands for grants have been taken care of. If need be, we might revise, but that assessment is not now. At the moment we are going in accordance with the borrowing programme, but have to be conscious that there may be a possibility and if that is a possibility, we will plan for additional borrowing,” he said. Garg said that the finance ministry had asked various departments to provide their spending assessments and those were being examined.

The borrowing calendar, released after Garg’s remarks, shows that from the week starting October 2 to the week starting December 25, the RBI will issue government securities (gsecs) worth ~15,000 crore per week. For the week starting January 1, the Centre will borrow ~18,000 crore. For the remaining weeks in 2017-18, the RBI will issue g-secs worth ~5,000 crore per week.

The yield on the 10-year government benchmark bond eased to close at 6.64 per cent on Thursday against 6.67 per cent on Wednesday.

At the media briefing, Garg also said that even as the PSUs had been told to spend more, the budgeted PSU dividend target would also be met. The PSU dividend target for 2017-18 is ~67,529 crore, down from the 2016-17 revised estimate of ~77,051 crore. Listed non-oil PSUs together made equity dividend payments of around ~35,000 crore in FY17, up from ~28,000 crore a year before. Nearly two-thirds of this accrued to the central exchequer.

When asked if the Centre would seek additional dividend payments from the RBI, he said that those discussions were on. In the wake of expenditure incurred towards demonetisation, the RBI had halved its dividend payout to the government to ~30,659 crore for the year ended June 2017.

On recapitalising stateowned banks through bonds, Garg said the issue was being discussed. "There are various options of funding them and capitalisation bond is one of them. Those options are being discussed."

GDP growth for the AprilJune quarter fell to 5.7 per cent due to demonetisation and destocking by companies following pre-goods and services tax (GST) jitters. With this, India lagged China in terms of growth in gross domestic product (GDP) for the second consecutive quarter. GDP growth was 7.9 per cent in April-June 2016-17. It is in this backdrop that top policymakers in the Narendra Modi government have held a number of meetings to brainstorm on ways to revive exports, spur investments, and create jobs.

As reported in Business Standard earlier, the deliberations include ways to raise resources to finance higher capital spending beyond the budgeted ~3.10 lakh crore for 2017-18. This could be through higher borrowing or higher disinvestment receipts. Non-fiscal stimulus was also discussed, such as more infrastructure bonds issued by central agencies like the NHAI and recapitalising banks through either bond issuances or paring the government’s stake in stateowned lenders further.