Ratings agency Crisil on Monday said government will overshoot its 4.8 per cent fiscal deficit target by 0.40 per cent this fiscal and suggested state-run companies should dip into their cash reserves to narrow the gap by paying extra dividends.
Given the current scenario, wherein the front loading of expenditure has resulted in 84.4 per cent of the budgeted fiscal deficit target being hit by November, Crisil said it expects the fiscal deficit to touch 5.2 per cent.
"The Centre can reduce its fiscal deficit by as much as Rs 20,000 crore (Rs 200 billion) this fiscal by using cash reserves of public sector units," its research wing said in the note.
It said the top 20 public sector undertakings will have a cash reserve of Rs 1,60,000 crore (Rs 1,600 billion) by March 2014 and are ‘comfortably placed’ to pay a special dividend.
"We estimate these companies are well placed to distribute 40 per cent of the corpus (Rs 64,000 crore or Rs 640 billion) as dividend without impacting growth plans," it said.
This amount will be Rs 27,000 crore (Rs 270 billion) more than the dividend paid by the companies in last year and after calculating the stake of the government in the companies, will result in an excess revenue of Rs 20,000 crore (Rs 200 billion).
"The Rs 20,000 crore additional income would approximate 20 basis points of the fiscal deficit, which can help the government reach closer to its stated fiscal deficit target of 4.8 per cent," it said.
On the fiscal deficit front, its president for research flagged concerns over the revenue collections from the taxation front and also about the government not being able to achieve its Rs 40,000-crore (Rs 400-billion) divestment target.
"In such a scenario, the cash reserves of public sector units provide an alternative source of income," he said.