Small savings to help meet government fiscal targets: SBI Research

A likely adverse impact of rising crude oil prices on the fiscal parameters could be offset by meeting small savings scheme mobilisation target, a report by State Bank of India’s research department said.

“We believe the Government is walking a very delicate balance between managing fiscal deficit amidst slowing revenue.” Said the report authored by SK Ghosh, SBI’s group chief economic advisor. “The only silver lining is the Government has mobilised small savings worth Rs 54,404 crores during the first six months of this fiscal.”

With this rate and assuming oil price tapers down to reasonable levels, the Government could thus receive budgeted Rs 1 lakh crore in small savings in FY18, and thus would be able to do a buyback of Rs 75000 crore.” This in turn implies that the Government would be able to meet its net market borrowing target of Rs 3.48 lakh crore in FY18, a huge positive for bond markets” the report said

Crude prices crossed $62 a barrel due to OPEC (oil producing and exporting countries)-led output cuts. OPEC and some non-OPEC producersincluding Russia have pledged to curb their production by around 1.8 million barrels per day (bpd)till March’18 to drain a global supply glut.

Changes in global crude prices could hit the economy through various channels including price, fiscal and trade. The report estimates that the impact of a $2 increase in crude prices could have an impact of upto 0.16% of GDP on the country’s current account deficit in the balance of payments, While retail price inflation could rise by about 3to 5 bps (one basis point or bps is 0.01%). If the government decided to cut excise duty in case crude prices rise further, the way it did recently, then there would be revenue loss of Rs 30,000 crore to Rs35,000 crore.