SUUTI and spectrum auctions are FM’s best bet
Given the last time the fiscal deficit in the first six months of the year was around 76% of the full year’s target was in FY09, and that year’s deficit ballooned from the projected 2.5% of GDP to 6%, the portents for finance minister P Chidambaram being able to stick to his 4.8% target don’t look good. Of course, while FY09’s deficit was elevated because of the large pay commission arrears, the big difference this time is the sharp collapse in revenues and the bringing forward of expenditure. While overall tax collections are a mere 37.1% of the budgeted tax as compared to 41% in the same period last year, the story gets worse as you drill down to specific taxes. In the case of corporate taxes, as compared to the budgeted growth target of 16.9%, April-September collections are up just 7.5%, personal taxes are broadly on target, customs collections are up a mere 5.6% versus the targeted 13.6% and service taxes are up just 16.3% versus the 35.7% target. The shocker: against a 14.9% excise duty target, collections are down 8.2%—while 38.3% of the year’s target was collected by this time last year, this year’s figure is a mere 31.3%. None of this is unexpected given the collapse in industry, corporate profits and overall GDP. The problem is, the future isn’t going to be that bright either; even RBI has lowered its growth forecast to 5% as compared to the 6% assumed in the Budget.
Non-tax receipts have fared even worse. Against a R54,000 crore disinvestment target, the first six months have yielded just R1,479 crore. The government is also targeting a huge jump in dividend and profits including from RBI, from R72,037 crore in FY13 to R91,631 crore in FY14. Given this will also slip, the FM’s choices are limited. A sharper cut in expenditure is one way out—it has already begun with September’s fiscal deficit up just R8,000 crore as compared to R70,000 crore each in the past few months—but that lowers potential GDP even more. In which case, the FM has no option but to pull out all the rabbits he can from his hat. This means looking at selling all SUUTI’s shares, worth R51,000 crore; it means finalising the residual stake sale for both Balco and HZL—while R14,000 crore has been budgeted for this, based on today’s values, this stake sale could end up fetching around R18,000-20,000 crore. The CBI looking to file a case against the BJP ministers in the HZL privatisation case, though, will certainly delay matters.
Finally, the FM needs to ensure the Telecom Commission brushes aside the telecom ministry’s objections to Trai’s recommendations—on the base price and the uniform spectrum charge—and quickly clears the auctions which will, undoubtedly be helped by a friendly M&A policy. As compared to last year’s receipts of R19,440 crore (essentially licence fees/spectrum charges), the finance minister has budgeted R40,847 crore, which includes R20,000 crore or thereabouts from auctions. If the defence ministry can be persuaded to swap spectrum in the 2,100 MHz band, the chances of getting more increase substantially. In other words, if the finance minister pushes, despite poor tax collections, he can easily remain within his fiscal red line.