The government’s divestment plans have missed their targets for five consecutive years. The government is likely to stick to the FY25 target of miscellaneous capital receipts (includes divestment) of Rs 500 billion. However, achieving this target hinges on government undertaking big-ticket divestments, revealed a latest report by CareEdge Ratings.
The government has relied on OFS route for undertaking divestments in the recent years. Issues like procedural delays, litigations by labor unions/interest groups, and pricing issues continue to slow divestments.
The total divestment potential is estimated to be of Rs 11.5 trillion (assuming Centre retains 51 per cent stake). However, decision to divest will depend on market conditions and strategic nature of the firms. In case divestment lags going ahead due to headwinds, the government will continue with its focus on asset monetization, said the report.
Fiscal Deficit Target maybe reduced
Additional revenue growth is expected to help reduce the fiscal deficit target for FY25 to 5 per cent of GDP ( from interim budget’s target of 5.1 per cent of GDP), even after accounting for higher revenue expenditure, the report stated.
Higher projection of nominal GDP growth for FY25 is also expected at 10.7 per cent (as against interim budget estimate of 10.5 per cent). General government debt has shot up to 83 per cent of GDP in FY24, resulting in high interest burden. With sovereign rating agencies watching the debt trajectory, the focus on fiscal consolidation should continue.
Capex to remain in focus
Government is likely to retain capex target for FY25 at Rs 11.1 trillion, growth of 17 per cent compared to FY24, the report revealed.
Overall public capex grew by 15.1 per cent in FY24. A slowdown in state capex and contraction in CPSE capex moderated overall public capex growth in FY24.
CPSE capex have contracted over the past few years. However, FY25 interim budget saw a 5.2 per cent growth in allocation to CPSEs for capex, the report added.
BFSI Expectations
As per expectations in BFSI from Budget, the ratings agency expects the government to incentivise inflows — undertake steps to improve deposit inflows into the banking sector, relaunch a scheme similar to PMAY CLSS for affordable housing, greater impetus on MSME focused schemes to enable MSMEs access funds for capital expenditure / working capital, progress on reforms such as ECL framework and reduce differentiation in regulations between banks and NBFCs.
The Central Government could also look at diluting stakes in select public sector banks to meet listing norms.
Further, the government can infuse capital in public sector general insurance companies — the companies have lower solvency ratios which need to be addressed along with
the need for growth capital. Reforms on the line of composite license, micro insurance, IND AS, etc. to drive the target of insurance for all is also expected.
Currently under the IBC, cases take nearly two years to resolve while recovering
around 30 per cent of the claims. Norms for speedy resolution, increasing recoveries could be enhanced. Creation of specialized financial institutions to promote non-infrastructure project financing can
be enhanced, the report added.
The banking sector has logged sustained improvement in capital buffers, asset quality and profitability amidst strong business expansion. Credit growth remains robust, primarily driven by personal loans and services sector.
Deposit mobilization by banks gathered pace in FY24 with term deposits accounting for the better part of new accretions. Interest rates have risen as banks stepped up efforts to mobilize funds to sustain the rapid rise in credit demand.
NBFCs maintained robust credit growth in FY24. Personal loan growth decelerated whereas growth in loans to industry and services accelerated. The GNPA ratio of continued its downward trajectory, while the capital position remained steady.
