Budget To Focus On Infra, Raise Capex, Unlikely To Allocate Fund For Bank Recapitalisation

The 2022 budget session of the Parliament will be commencing on January 31, 2022, with President Ram Nath Kovind addressing both the houses, media reported.

The session will be held in two parts – the first part of the session would conclude on February 11. After a month-long recess, part two of the session would begin from March 14 and conclude on April 8, the report said.

The Economic Survey is a report which the central government presents on the state of the economy during the past one year, the key challenges it anticipates, and their possible solutions.

The Economic Survey 2021-22 is likely to be tabled on January 31 after the president’s address, the report said. The Union Budget will be presented on February 1, 2022, by Finance Minister Nirmala Sitharaman.

Amid a surge in Covid-19 cases, it would be mandatory for members of parliaments (MPs) as well as those entering the Parliament complex to have a negative RT-PCR report and a fully vaccinated certificate, the report said quoting parliamentary sources.

Recently, more than 400 Parliament staff had tested positive for the Covid-19, weeks ahead of the Union Budget session. The upcoming budget is unlikely to make any provision for recapitalisation of state-owned lenders, as over Rs 3.36 trillion has been spent on the banks in the last six years, a domestic rating agency said on January 13.

The banks will raise capital through internal accruals and fundraising from the market, ICRA said in a note, adding that the lenders have the ability to manage.

Courtesy of the over Rs 3.36 trillion of fund infusions from the taxpayers, the state-owned banks’ stock of net non-performing assets has reduced to 2.8 per cent as of September 2021 from the 8 per cent level of March 2018, the ICRA note said.

With high provisions on legacy stressed assets, the earnings outlook for public banks also seems healthy, as we expect most public banks to incrementally remain profitable and generate growth capital requirements internally, it said.

In the past the bank recapitalisation allocation is one of the most keenly awaited numbers in the annual budget exercise.

The media reported that recoveries from legacy NPAs as NARCL (National Asset Reconstruction Company) becomes operational could aid the bottom lines of the banks in the coming years.

It said public banks were also able to roll over their additional tier I bonds that were due for a call option in FY22, reflecting a strong investor appetite for their issuances, which bodes well for their future issuances.

With cleaner balance sheets and an improved earnings outlook, banks can also raise capital from market sources as they have done in recent years.

For the first time in over a decade, we do not expect any capital to be budgeted by the government of India for public banks despite the enhanced regulatory capital requirements, it noted.

The agency also said it expects the budget to have some provision for a permanent refinance window from the RBI, as such entities account for a fourth of the overall lending in the economy.

We expect the Budget to continue with some of the liquidity and guarantee schemes to ensure near-term funding availability for NBFCs (non-infra) and to provide guidance on the medium-term support framework for the sector, which could boost investor confidence and would be key for a sustainable revival, it added.

A continued push on capital expenditure and roll out of infra projects under the National Infrastructure Pipeline (NIP) will be central to the Union Budget 2022-23 as the Central government looks to hold and build on the recovery in the economy. Projects in roads and railways sectors and Nal se Jal scheme are expected to receive funding boost as the government targets to increase capex spending by around 30 per cent next year, government officials said.

 “We have seen the economic recovery this year, but there is a need to hold on it and not let it (the momentum) fizzle out. The Centre is also in discussions with the states to see that the infra projects get rolled out on the ground,” the official said. Bidding of projects under the NIP is expected to gather pace next year. Even as the capital expenditure has been less than anticipated so far, the government expects it come close to Rs 5.54 trillion budgeted for 2021-22 by March-end.

“The thrust of the Budget is to maintain a fiscal stance that is contractionary but with the required push on spending where it’s required, especially infra projects, which can be done through reprioritising expenditure,” another government official said, indicating that the government may opt for milder fiscal consolidation from the current level of 6.8 per cent of Gross Domestic Product.

As a key step to boost private sector capex in infra sector, the government is expected to remove the guideline of seeking bank guarantees for infra projects and possibly replacing them with surety bonds. This has been one of the key demands industry chambers. ahead of the budget. With typically 20 per cent of the funds getting locked up in bank guarantees, this move could possibly free up nearly Rs 8 trillion of private sector funds over the entire spread of NIP projects, as per industry estimates.

“(Among our various Budget suggestions) we have said have surety bonds instead of bank guarantees, because as you spend more on infrastructure, and if you want those kinds of jobs and you have to furnish bank guarantees, that’s a lot of unnecessary cost in the system. The US and in places like that they have the surety bonds, just like an insurance that you have, which can be kept in case somebody’s reneges on contracts,” CII president T V Narendran informed the media.

Bank guarantees are “adding unnecessarily to project costs and will be the single biggest obstacle to rapidly completing construction under NIP. It is time to go for revolving bank guarantees or insurance surety bonds,” FICCI has said in its list of budget suggestions to the finance ministry.

Some of the key reform measures of this year’s budget, especially relating to privatisation of two state-owned banks and some key government companies, will spill over to the next year.

Capital expenditure by the Centre has been slower than the targeted pace outlined in the Budget. During April-November, the first eight months of this fiscal, the government has incurred 49.4 per cent or Rs 2.73 trillion of its total budget target of capital expenditure.

With the nominal gross domestic product (GDP) coming in at a higher level of 17.6 per cent in the first advance estimates released on January 14 than the FY22 budget level of 14.4 per cent, the government is likely to get more fiscal headroom. Economists, however, said that given the lower-than-budgeted pace of government expenditure so far, this fiscal, there is a possibility that this additional fiscal space could come in handy to present a lower fiscal deficit rather than being used to kick off any additional spending during the remaining quarter of FY22. The finance ministry has been holding review meetings with states, departments, and ministries to review progress of capital expenditure and implementation of infrastructure projects.

The Union Budget 2021-22 had provided a capital outlay of Rs 5.54 trillion. The government had also made provision of over Rs 2 trillion for states and autonomous bodies towards their capital expenditure. The National Infrastructure Pipeline was launched in 2020 with projected infrastructure investment of around Rs 111 trillion during FY2020-2025 to build infrastructure across the country. NIP was launched with 6,835 projects, which was later expanded to over 9,000 projects covering 34 sub- sectors.