The much touted spectrum auction has ended in a fiasco. As against an astronomical over Rs 560,000 crores being the expected proceeds from the auction, the actual sale has been a little over 10% or Rs 65,000 crores. Of this, around Rs 32,000 crores will be available during the current year.
Critics aver that this will cast a shadow on the ability of finance minister, Arun Jaitely to achieve the fiscal deficit target of 3.5% of GDP [gross domestic product] during the current year. This is because under this head alone, there will be a shortfall of Rs 32,000 crores vis-à-vis the projected level of Rs 64,000 crores.
Significant shortfall is also expected in proceeds from divestment of government equity in public sector undertakings [PSUs]. Under this head, the budget had projected receipt of Rs 56,500 crores which includes Rs 20,000 crores from ‘strategic’ divestment or sale of sizable shares to a single entity entailing transfer of ownership and management control.
So far, not even a single ‘strategic’ divestment has happened. Now, a total of 6 PSUs have been identified for sale in this category. However, considering the long-drawn process involving preparations and decision at multiple levels leading to approval by the cabinet, it is unlikely that the divestment will get consummated in any of the identified undertakings before this year end.
Other two areas of slippages are (i) excess payments on salaries and pension on account of 7th Pay Commission recommendations over provision in the budget and (ii) heightened need for re-capitalization of public sector banks [PSBs] currently reeling under huge stress due to unsustainable level of non-performing assets [NPAs].
Yet, Jaitely remains un-perturbed and has alluded confidence that the government would able to achieve the target. The minister has strong and valid reasons in support of what he says. On a close look, one can identify other areas which can make up for the slippages in the aforementioned areas.
First, under the income declaration scheme [IDS] launched on June 1, 2016 with a tenure of 4 months ending September 30, 2016, people have declared undisclosed income of Rs 65,250 crores [this could go up to Rs 80,000 crores as complete data from various sources is collated]. This will yield additional tax revenue of Rs 30,000 crores [@45% including 30% tax, 7.5% surcharge and 7.5% penalty] which was not provided for in the budget.
Second, thus far, indirect tax [Central Excise, Service Tax and Customs] has shown great buoyancy. During the first 5 months viz., April – August, 2016, net revenue collections has increased 27.5% [over April – August, 2015] to Rs 336,000 crore. Net excise revenue has increased by 49% to Rs 153,000 crores. Net service tax collection too has increased by 23% to Rs.92,000 crore. Till August 2016, 43.2% of the budget estimates has been achieved. Things will only look up during rest of the year raising prospects of exceeding the estimates.
Third, the Specified Undertaking of Unit Trust of India [SUUTI] – carved out of the erstwhile UTI – holds residual shares in Axis Bank, Larsen & Toubro and ITC [Indian Tobacco Company]. At current market value, these are worth about Rs 64,000 crores. This provides a huge cushion; depending on the shortfall, sale of specified percentage of these shares can be undertaken.
Fourth, mandatory neem coating of urea [ordered by Modi last year] has resulted in reining in diversion for industrial use or smuggling to neighboring countries. To the extent, farmers requirements are met via restoring diverted urea, there would be reduction in import entailing saving in subsidy. The government could save entire allocation of Rs 11,000 crores subsidy on imported urea if diversion is stopped completely.
Fifth, last year, Team Modi had got Qatar government to revisit and revise the long-term agreement for supply of LNG [liquefied natural gas] resulting in 50% drop in the price from around US$ 13 per million Btu to US$ 6.5 per million Btu. The revised price is applicable from January 1, 2016. This would reduce fertilizer subsidy by about Rs 6,000 crores during the current fiscal.
Finally, the government has given directions to oil marketing PSUs viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL] to increase the price [albeit subsidized] of LPG and kerosene in small doses every month. This would help in restricting petroleum subsidy to level lower than provided in budget.
The mentioned buffers reinforce the confidence exuded by Jaitely that it should be possible to more than offset the slippages in specified areas [proceeds from spectrum auction, divestment etc] and thereby help in achieving the fiscal deficit target for current year. For the future also, there are reasons to believe that the government will stay on course in regard to fiscal consolidation.
In this regard, 4 key areas of reforms initiated by Modi – dispensation merit special attention: (i) injecting ‘decisiveness’ and ‘transparency’ in policy making; (ii) eliminating leakages in disbursement of financial assistance under welfare programs; (iii) introduction of Goods and Services Tax [GST] from April 1, 2017 and (iv) direct benefit transfer [DBT] of subsidy on food, fertilizers and kerosene to be implemented from April, 2018.
Without doubt, these structural reforms will lay the foundation for ‘high’ and ‘inclusive’ growth on a sustained basis and in turn, result in buoyancy in revenue and optimization of expenses under various development and welfare schemes. This is the surest guarantee for keeping deficit within desired limit.