There goes the fisc PDF Print E-mail
Friday, 09 December 2011 01:28
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Rs 1 lakh crore more for subsidies, revenue shortfalls …


Finance minister Pranab Mukherjee is going to have to pull several rabbits out of his hat if his fiscal deficit is going to bear even the semblance of a resemblance to the 4.6% he promised just 10 months ago. He’s already made demands for supplementary grants adding up to around R70,000 crore and has announced an additional borrowing target of R54,000 crore. And, on Wednesday, he told Parliament that the rupee’s depreciation would likely raise the subsidy bill by around R1,00,000 crore by the end of the fiscal year. There’s obviously an overlap in the figures—around half of the supplementary grants, for instance, were on account of increased subsidies. But even if you take the R1,00,000 crore figure, that will raise the fiscal deficit by around 1.3-1.4%, depending upon what the final GDP number is—real GDP will be lower than projected, but the higher inflation will help!

Nor is it just subsidy expenditure that will rise, since a big

reason for the sharply compressed deficit number was the wildly unrealistic expenditure compression he’d budgeted—against an 18.8% increase in expenditure in 2010-11, Mukherjee assumed a 3.3% hike in 2011-12, vastly lower than even the inflation in the year. Within this, believe it or not, the finance minister expected the subsidy bill to fall from R1,64,153 crore in 2010-11 to R1,43,570 crore in 2011-12—oil subsidies were to fall from R38,386 crore to R23,640 crore! So when the FM says oil subsidies will rise dramatically, only part of this is due to the rupee’s fall, a large part is due to unrealistic budgeting in the first place.

Add to this the likely shortfall in tax collections, a natural corollary of a slower GDP growth and dramatically slowing corporate profits. The exact shortfall, though, is difficult to forecast, given the government’s penchant to force corporates to pay extra taxes and later claim a refund. The R40,000 crore budgeted for disinvestment continues to be a real problem, as does the money to be got from the ‘extra’ spectrum with the older telcos. Getting PSUs to buy the government shareholding in other PSUs is still an option, though it is being opposed by the line ministries. Selling off the SUUTI shareholdings in blue-chips like ITC is an option, but it cannot make good the entire shortfall. So, unless Mukherjee does some major calisthenics including perhaps postponing some defence expenditure, it looks like he’s stuck with a deficit that is 1.5-2 percentage points higher than what he planned—and with the economy slowing so badly, he can’t even say the stimulus helped keep growth intact!



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