Govt may not be able to keep fiscal deficit at 5.1%

The government has got renewed worries on its ability to keep the fiscal deficit at around the Budget estimate of 5.1 per cent of GDP during 2012-13, with some telecom operators staying away from the 2G spectrum auction and public sector units chosen for partial divestment developing cold feet.

The finance ministry is working on a fiscal reduction plan involving cutting expenditure, utilising savings from social sector schemes, keeping supplementary demands to the minimum, rationalising subsidies and shifting some of the year's final quarter liability to the next financial year.

After the steel ministry did not agree to sell equity of Rashtriya Ispat Nigam Ltd (RINL) - the first company listed for divestment this year - below its book value of Rs 22 a share, leading to deferment of its proposed stake sale, some other ministries are also believed to have expressed reservations on offering equity in PSUs under them in the current market conditions.

Officials said Finance Minister P Chidambaram and cabinet secretary Ajit Seth have begun deliberations to address the issue, failing which the year's disinvestment target of Rs 30,000 crore (Rs 300 billion) will be missed.

On Friday, Reliance Industries and Sistema were among the telecom operators which did not apply to participate in the spectrum auction. As a result, companies are not expected to bid very high. The finance ministry is not expecting more than Rs 35,000 crore (Rs 350 billion) from the auction, against the target of Rs 40,000 crore (Rs 400 billion).

Subsidies are likely to overshoot the Budget target of Rs 1.9 lakh crore (Rs 1.9 trillion) by at least Rs 50,000 crore (Rs 500 billion). The requirement for food subsidy has already swelled to Rs 1,01,879 crore (Rs 1.02 trillion)) in the first six months of 2012-13, about 36 per cent more than the Budget estimate of Rs 75,000 crore (Rs 750 billion). Under-recoveries of oil market companies are estimated at Rs 1,67,415 crore (Rs 1.67 trillion) and more than half of it is likely be paid by the government.

There might also be some shortfall in tax collections, due to a slowing in economic growth. Till August, only Rs 1.75 lakh crore (Rs 1.75 trillion) could be mobilised, 22.7 per cent of the tax revenue target for the year. The September figures have been officially issued but those in the know said indirect tax collections rose 15.6 per cent to Rs 2.17 lakh crore (Rs 2.17 trillion) over April-September, against the annual target of a 27 per cent growth. However, net direct tax collections grew 16.3 per cent at Rs 2.26 lakh crore (Rs 2.26 trillion), against the annual target of 13.9 per cent growth, largely due to lower outgo on refunds.

The Kelkar panel, in its recent report on fiscal consolidation, recently said the Budget estimate for revenue was higher by Rs 60,000 crore (Rs 600 billion) than it should have been, while subsidies could shoot up by Rs 70,000 crore (Rs 700 billion). It said only Rs 10,000 crore (Rs 100 billion) was expected from disinvestment. However, these estimates were in the context of a worst case scenario.

"If the revenue is overestimated (in the Budget), so is the expenditure. We are expecting savings of at least Rs 30,000-40,000 crore (Rs 300-400 billion) on the plan side. Besides, we have to take care of the additional demands arising mainly till the end of the December quarter. Some of the liabilities for the January-March quarter can be shifted to the next financial year. So, there will be arrears in the next fiscal," said a ministry official.

Of Rs 100,000 crore (Rs 1 trillion) food subsidy demand, around Rs 22,000 crore (Rs 220 billion) is the arrears carried over from 2011-2012. The arrears could swell to around Rs 40,000 crore (Rs 400 billion) for the current financial year, as till date the government has allocated just Rs 62,000 crore (Rs 620 billion). Similarly, Rs 43,000 crore (Rs 430 billion) provided as fuel subsidy in the Budget for 2012-13 has already been used up, in clearing last year's dues.

The Budget estimate pegged the Centre's fiscal deficit at 5.1 per cent of GDP for 2012-13. In absolute terms, it was estimated at Rs 513,590 crore (Rs 5.14 trillion). Of these amounts, the fiscal deficit has already constituted 65.7 per cent of the estimated total in the first five months of 2012-13. The percentage at the corresponding period of last year was slightly higher, at 66.3 per cent; however, the deficit was projected at 4.6 per cent of GDP in 2011-12 in the Budget estimate but it finally shot up to 5.76 per cent.