Govt to deem SBI stake buy profit as cap receipt

NEW DELHI: The government has chosen to count the reverse transfer of its payout to RBI for purchase of State Bank of India shares as a capital receipt so as not to distort the revenue deficit projections.

The government’s acquisition of RBI’s 59.73% stake in SBI will have a neutral impact on the revenue deficit projected for the next fiscal. The budget has accounted for RBI’s profit on account of the stake sale — surplus of which is transferred to the government — as a capital receipt instead of a revenue receipt.

The money payable to RBI on account of the stake transfer — estimated at Rs 40,000 crore — will be recorded as a capital expenditure in the government’s books. The corresponding gain in the form of surplus transfer from RBI is also being treated as a capital receipt, departing from the usual norm that would have counted receipt as ‘non-tax revenue receipts’.

The budget documents that show ‘other non-plan capital outlay’ jumping by a whopping 527% from Rs 7,853 crore in 2006-07 (budget estimate-BE) to Rs 49,314 crore in 2007-08 (BE) include Rs 40,000 crore payable by the Centre for RBI’s stake in SBI.

If the profits of RBI had been recorded under the usual head, ‘dividends/surplus of RBI, nationalised banks and financial institutions’, this extra-ordinary item would have inflated the non-tax revenue receipts, projecting an unrealistic decrease in the revenue deficit (RD) projected for 2007-08.

This is because the revenue receipts would have been inflated to the tune of Rs 40,000 crore while revenue expenditure would have remained at the same level, affecting the RD. Revenue deficit is arrived at after deducting total revenue expenditure from overall revenue receipts.

The RD as a percentage of GDP according to revised estimates stands at 2% for the current fiscal. As per the FRBM targets, RD has to reduce by 0.5% every year, and the targeted figure for 2007-08 accordingly is 1.5% of GDP.