The funds will be used to infuse ₹4,557 crore into IDBI Bank and ₹2,500 crore into state-run insurance firms
Most forecasters have cut growth projections for FY20 and expect the economy to have grown below 5% in Sep quarter
NEW DELHI :
A day after indicating the possibility of a fiscal slippage, finance minister Nirmala Sitharaman on Thursday sought parliamentary approval for gross additional expenditure of ₹21,246 crore, part of which will be used to recapitalize IDBI Bank Ltd and three state-run insurers.
The government will use the funds to infuse ₹4,557 crore into IDBI Bank and ₹2,500 crore into state-run insurance companies through recapitalization bonds. This will help IDBI Bank, now controlled by state-owned Life Insurance Corporation of India, to come out of the restrictive prompt corrective action framework.
The fund infusion into the three state-run general insurers—National Insurance, United India Insurance and Oriental Insurance—ahead of their proposed merger will help them maintain solvency margin and wipe out losses.
The exchequer’s net cash outgo will, however, be ₹18,995 crore as the remaining expenditure will be met through departmental savings or enhanced receipts. Most of the proposed spending is under the head of revenue expenditure ( ₹15,346 crore), with only ₹3,650 crore earmarked for capital spending, according to the first batch of Supplementary Demands for Grants 2019-20 tabled by the finance minister in the Lok Sabha on Thursday.
A countercyclical fiscal stance by the central government would help alleviate some of the growth pains, with the immediate multiplier effect being higher if it is focused on revenue spending, said Madhavi Arora, an economist at Edelweiss Securities. “However, the extent of growth uptick owing to higher fiscal spending will be contingent on the extent of deficit slippage. We expect fiscal deficit to slip to 3.7-3.8% in FY20 as against 3.3% budgeted by the government."
For the Union territories of Jammu and Kashmir, and Ladakh, the finance ministry has proposed grants of ₹8,821 crore. It has also sought ₹1,000 crore for providing cooking gas facilities to poor households.
The additional funding demanded on Thursday may lead to fiscal slippage by another 10 basis points in 2019-20.
While replying to a discussion on the economy on Wednesday, Sitharaman said it is sometimes difficult to maintain fiscal discipline. “Although the FRBM Act has been there since 2004, on average, the fiscal deficit during UPA-2 was 5.5% of GDP. If that’s the level of fiscal deficit they maintained, and today, even when I am facing the challenges and addressing them, the anxiety about fiscal deficit, I appreciate the anxiety, but people who ran it well above 5%, should know what fiscal management is," she added.
So far, the government has maintained that it will stick to the fiscal deficit target of 3.3% of GDP for 2019-20.
The economy has slowed to the lowest growth in six years, expanding at 5% in the June quarter. Most forecasters have slashed growth projections for 2019-20 to below 6% and expect the economy to have grown below 5% in the September quarter, data for which will be released on Friday.
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