Revenue stories till date

If you look back at the last 8 years that this government has been in power, a number of factors helped boost inflows for the government. This included levies on fuel, RBI dividends, monetizing PSUs and disinvestments. The last item has been a mixed bag, but we will come to that point later. The challenge is that all these four key drivers are likely to come under pressure in the coming year. Here is why it presents a revenue challenge. 

Oil levies and RBI dividends

The big story was the steep levies on oil with the central government skimming most of the benefits of weak crude prices over the last 7 years. With Brent crude at $90/bbl, the retail prices of fuel are already too steep. Any further hike in fuel charges is just not feasible. On the other hand, the government may have to do more in terms of duty cuts to avoid a collapse in oil demand. On RBI dividends, there have been mega pay-outs in the last few years, including a massive Rs.105,000 crore this year. In the coming years, the RBI dividends can at best be at more normalized levels, to ensure that RBI capital is not impacted. 

Monetizing and divestments

There are two ways that government has been monetizing its PSU holdings. Firstly, it has been divesting its stake in PSUs. Secondly, it has been monetizing its stake in PSUs via dividends and buy-backs. On the divestment front, the government has fallen way short of its targets in FY21 and most probably it will fall short in FY22. Once LIC and BPCL are done, mostly in FY23, there is not much that the government can do in the form of big ticket divestments. On the subject of higher payouts by PSUs, it is a double whammy. Most PSUs are under resource strain and they need the funds to make their own investment plan in the emerging business opportunities! 

National Monetization Plan

What the government will have to focus on in a big way is to now look at ways and means of monetizing the revenue generating assets of the government. This can be largely in the form of the monetization of future cash flows. That is what the National Monetization Plan or NMP is all about. However, that also pre-supposes a number of legal as well as procedural changes and that is where this budget becomes crucial. With fiscal deficit of 6.8%, and unlikely to fall too much this year, the government needs more revenue sources. Most of the big ideas have served their purpose. For the Budget 2022, the one big gap is the big revenue story for the next two years!