After PM Modi has cleared the air on the much-awaited OROP bill, calculations on the fiscal front have started coming in. A recent "This would mean higher current pension payments as well as paying off arrears (retrospectively from July 2014), it will have a significant impact on the fiscal bill. We estimate the overall cost to be Rs 16,000 crore (USD 2.5 billion or 0.1 per cent of GDP) in FY16," HSBC said in its research note.
The global brokerage firm also said that the existing defence pension bill is likely to go up by Rs 10,000 crore, while arrears totalling Rs 12,000 crore will be paid over two years.
HSBC Chief India Economist
Apart from this, there are certain other pressures on the fiscal front that might worry the government. The government recently announced capital infusion of Rs 70,000 crore over the next four years including Rs 25,000 crore in the current fiscal. The disinvestment department's mammoth target of Rs 69,500 crore, on the other hand, is unlikely to be met.
"The disinvestment receipts target of Rs 69,500 crore looked rather rich. Even in the previous year, FY15, the government budgeted for Rs 63,400 crore but ended the year with about half of that," Bhandari added.
However, factors like lower than expected subsidy bill, additional non-tax revenues like RBI and PSU dividends are likely to offset some pressures on the fiscal front.
The deciding factor on whether the fiscal deficit target of 3.9% of GDP is easily met is likely to rest on the overall tax revenue growth.
"All said, while it's too soon to declare that the fiscal target will be missed, pressures are mounting and it is time to monitor closely," HSBC said.
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