After struggling to rein in the fiscal deficit to the targeted level for most of the year, the government is likely to get a booster dose in the form of revenue worth about Rs 55,000 crore (Rs 550 billion) in the ongoing quarter of 2013-14.
This may not improve the government’s financial health drastically and the government would ultimately have to severely cut plan expenditure -- a move which is learnt to have been taken and be announced at the time of vote on account next month -- to check fiscal deficit at the targeted 4.8 per cent of GDP (gross domestic product) for 2013-14.
The recent decisions to offload part stake of SUUTI in Axis Bank, sale of its residual stake in Hindustan Zinc, dividend payment by Coal India Limited and allowing cross-holding in Indian Oil Company would help the government raise much-required revenues.
In order to make up for the fall in tax receipts and disinvestment proceeds, the finance ministry has apparently cut the plan expenditure drastically while fixing revised estimates for 2013-14.
Tax receipts, net to the Centre after devolution, stood at Rs 3.96 lakh crore (Rs 3.96 trillion) up to November, which is 44.8 per cent of the target -- lower than 47.9 per cent mopped up in the corresponding period of the previous financial year.
Even in 2012-13, tax receipts had fallen short of the Budget target by around Rs 40,000 crore (Rs 400 billion).
So, in the current year also, the likelihood of a similar shortfall cannot be ruled out, despite efforts by the tax department to boost collections.
“There was pressure from slow revenue and significant slippage from disinvestment target.
"Now, the revenue is coming from other sources.
"But, there is still a question mark on the government meeting its fiscal deficit target. Our estimate is it will be 4.9 per cent,” said Devendra Pant, chief economist & senior director, India Ratings.
With CIL paying an interim dividend and more PSUs and public sector banks expected to do so in the coming weeks, the finance ministry is expecting a significant jump in its Budget estimate of Rs 73,866 crore (Rs 738.66 billion).
Officials said the target would easily be exceeded by Rs 10,000 crore (Rs 100 billion).
Last year also, dividend payments at Rs 53,790 crore were higher than the target of Rs 50,153 crore (Rs 501.53 billion).
“Staggered payment mechanism for spectrum auction may result in non-tax revenues coming in below target this fiscal.
"Moreover, achieving the budget target for disinvestment remains challenging, with only one quarter left in the fiscal,” said Aditi Nayar, senior economist, Icra.
The budget has pegged receipts from spectrum sale, licence fee, etc., from telecom operators at almost Rs 41,000 crore (Rs 410 billion).
Since the market conditions were not conducive for disinvestment besides opposition to stake sale by some PSUs, the government asked state-owned ONGC and Oil India Limited to buy a 10 per cent stake in Indian Oil Corporation (IOC), which would help it fetch Rs 4,800-5,000 crore (Rs 48-50 billion).
From other disinvestment, the government has raised only about Rs 5,093 crore so far against a target of Rs 40,000 crore (Rs 400 billion).
IOC stake sale will take it to Rs 10,000 crore and the finance ministry is hopeful of raising Rs 20,000 crore (Rs 200 billion)
Earlier this week, the government agreed to sell its residual stake in Hindustan Zinc through the auction route.
This might give Rs 18,000-20,000 crore (Rs 180-200 billion).
Residual stake sale in Balco may also be approved soon, which will add about Rs 4,000 crore (Rs 40 billion) to the government coffers.
So disinvestment of stake in government companies could give about Rs 22,000-24,000 crore (Rs 220-240 billion), against the Budget estimate of Rs 14,000 crore (Rs 140 billion).
The government has also decided not to wind up SUUTI, for the time being, paving way for sale of its holdings in three private firms -- ITC, L&T and Axis Bank. First on the block is Axis Bank.
SUUTI’s 23.5 per cent stake in the lender is valued at Rs 13,000 crore (Rs 130 billion).
Even if the government meets its disinvestment target, and dividend from PSUs as well as surplus from RBI exceed BE by Rs 10,000 crore (Rs 100 billion), it may not be sufficient to offset for fall in tax receipts.
As such, to retain the fiscal deficit target at the projected 4.8 per cent of GDP, the government will have to drastically cut the plan expenditure.
Officials said the ministry has, in fact, cut it and would announce the amount at the time of laying the vote on account in Parliament next month.
Till November, the fiscal deficit has already touched 94 per cent of the target, pegged in the Budget.
In absolute terms, the government expenditure can now exceed its receipts by only around Rs 33,000 crore (Rs 330 billion) in the remaining four months to stick to Rs 5.42 lakh crore target for the deficit.
The fiscal deficit has already touched Rs 5.09 lakh crore (Rs 5.09 trillion) till November.
Besides, the nominal GDP might not grow 13.4 per cent as assumed in the Budget.
Real GDP might grow at most five per cent against 6.4 per cent estimated in the Budget.
The wholesale price index-based inflation has averaged 6.14 per cent in the first nine months.
It may go down from here.
As such, nominal GDP might not grow much beyond 11 per cent.
This may magnify fiscal deficit as percentage of GDP, even if one assumes that fiscal deficit is reined in at Rs 5.42 lakh crore.
All eyes will now be on vote on account to see whether plan expenditure is cut by as high as over Rs 90,000 crore (Rs 900 billion) in RE compared to what was pegged in Budget Estimate, as had happened in 2012-13 or the cut was bit lower.
All indications showed that it would be lower than last year’s.
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