"Fiscal Bonanza Awaits Government, Impact on CAD May be Marginal!" - Says a Report Released by State Bank of India

"The Supreme Court has cancelled allocation of coal blocks. In a landmark judgment, out of the 214 captive blocks that the Supreme Court declared illegal, 105 blocks belonged to private companies. Of these, 42 blocks were operational and ready to produce nearly 53 million tonnes (mt) of coal, less than 10% of the country’s total output of the fuel. The Supreme Court has also slapped an additional levy of `295 per tonne. This compensatory payment is expected to garner `7000-8000 crore.

Further Government will save around `15,000 crore in fuel subsidy bill due to decline in oil prices. The impact of both, assuming all other things unchanged would bring down fiscal deficit by 18 bps to 3.95% from BE 4.13% of 2014-15. With increased earning of the exchequer we do believe that the targeted fiscal consolidation roadmap of limiting the same at 3% by fiscal year ending 2017 would be significantly easier to achieve, and we may be well below 3% by 2017.

The net burden on CAD would be an additional increase of $0.7 billion, with the comfort of a lower oil import bill negating the increase in coal imports. The good thing is that the amendments to the MMDR act likely to be tabled in coming session of parliament.

Such amendments are likely to lower the environmental impact, attract investment and reap the benefits through employment. Going forward, we now look forward to a quick plan of action to ensure coal supplies are not disrupted for a longer period of time.

Thereafter we need a swift and transparent bidding process for reallocation.”

For the detailed report, click here