Fiscal deficit blot on report card
Need to contain food subsidy bill
Infrastructure demand more than supply
UTI income rides high on US-64 rebound
Markets jittery on budget-eve
Industrial growth hits 6.2%
Portals spinning budget webs
Foreign Exchange, Bullion, Stock Indices

New Delhi, Feb 28 
There is a shadow over finance minister Yashwant Sinha. It looms over everything he packs into his budget � reform recipes, tax proposals and good intentions.

The Economic Survey for 1999-2000 calls it the fiscal deficit. Those uninitiated into the rarefied world of public finance should understand it as the difference between what the government earns and spends to keep itself going.

The survey says the combined fiscal deficit of the Centre and states has shot up to an alarming 8.5 per cent measured as a percentage of the gross domestic product (GDP). For a finance minister getting ready to present the millennium�s first budget, the survey should give him enough to lose sleep over.

He must be worried because a high fiscal deficit means the government gobbles up the bulk of the economy�s savings at the expense of others. And, since its appetite is voracious, it is ready to borrow at higher rates of interest. That creates a situation in which everybody pays more on their loans.

Worse, much of what the government raises as loans is spent on consumption, unlike others who use it to generate more output and jobs. The consequences are higher real rates of interest and inflation � which follows from deficit financing, a term used to describe a situation in which the Reserve Bank lends money to the government by printing currency notes.

This survey � like all others in the past � warns that the combined effect of all these problems can push the economy into a quagmire of recession and high prices. �The fiscal situation has come under tremendous strain,� the survey states.

The central government�s fiscal profligacy and poor tax mop up are being largely blamed for the country�s current predicament.

A fleeting look at revenues first: the Centre�s tax collections grew at the rate of 15.4 per cent in the first nine months (target 21 per cent); there is a gap of Rs 8,617 crore between the money actually raised from PSU disinvestment till December 31 and the lofty target of Rs 10,000 crore; the expenditure on defence and pensions has spiralled.

Total expenditure has zoomed 17.8 per cent between April and December. Borrowings and other liabilities surged 21 per cent year on year. As a result, the nine-month fiscal deficit for the year 1999-2000 was 17.2 per cent higher than the figure recorded in April-December 1998.

So, what�s the way out of the mess ? The survey�s prescription blends the traditional panaceas and a few new cures. In short, it says: downsize the government, target subsidies afresh to cover only those who need it, sell off commercial enterprises such as power utilities and transport undertakings, raise user charges on services, induct IT tolls and bring a degree of political commitment to expenditure management.

Though the survey has not spelt it out, a higher fiscal deficit also invites a lower sovereign rating.

Moody�s had downgraded the country�s rating, but raised it to positive, but speculative, grade last October. This is likely to be re-appraised after the budget.

Planning Commission advisors say the obvious implications would be �higher financing costs� for foreign investments and hard currency borrowings, deterring �foreign investments particularly in the infrastructure sector.�

The survey warns the current level of public debt � where interest payouts surpass the GDP growth rate and claim 48 per cent of revenues � is not sustainable. The government pays interest equal to 4.6 per cent of the GDP while the growth rate itself is only 5.9 per cent. In absolute terms, the interest paid out is Rs 88,000 crore while the GDP grew by Rs 64,000 crore (at 1993-94 prices).

Public debt � both internal and external � grew by an alarming 12 per cent, or Rs 1,05,844 crore, to Rs 9,81,170 crore in the current year.

Aggregate internal liabilities of the Centre are budgeted to increase to Rs 9,25,036 crore in 1999-2000 (48 per cent of GDP) from Rs 8,19,966 crore in 1998-99 (46.5 per cent of the GDP).

External liabilities � valued at the exchange rate at the time the loans were raised � increased from Rs 55,960 crore in 1998-99 to Rs 56,134 crore in 1999-2000. But when the foreign debt burden is revalued at the current rupee value, the total debt burden for 1998-99 alone zooms to a whopping Rs 1,77,934 crore. Taken together, the total outstanding liabilities of the government are more than half of the GDP.

Another fiscal challenge in the years ahead is the rise in contingent liabilities in the form of guarantees provided by the Centre.

These have gone up from Rs 65,573 crore in March 1996 to Rs 73,877 crore two years later.    

New Delhi, Feb 28 
Hinting at a hike in ration shop foodgrain prices, the survey has recommended urgent steps to contain the bloated food subsidy by a matching increase in supply and procurement prices while indicating that the food subsidy bill would overshoot the target of Rs 8,200 crore in 1999-2000.

�Some increase in issue prices for above poverty line (APL) households in January 1999 may help reduce the subsidy burden to Rs 8,200 crore, though there are reports that wheat offtake by them has declined as APL issue prices are close to market prices,� it said.

The survey points out that the gap between the economic cost incurred by the Food Corporation of India (FCI) in buying, storing and distributing food and its selling price has been widening over the years.

�If it is not possible to reduce the food subsidy burden, an attempt to limit the subsidy to present levels is now imperative in order to ensure fiscal discipline,� the survey observes, as otherwise a runaway fiscal deficit fuelled by high subsidies could result in another dose of inflationary pressures.

However, the survey was upbeat regarding measures taken on the price control front. Import liberalisation, reducing the gap in prices between the domestic and international markets, and de-control of the domestic manufacturing sector has kept the average inflation rate down to just above 3 per cent, it stated.

The survey has also predicted that with the removal of quantitative restrictions on imports by April 2001, the gap will tend to narrow down further.

However, it blamed the sharp fall in inflation rates in the calendar year 1999 for a rise in real interest rates due to �substantial segmentation and rigidities in the markets.�    

New Delhi, Feb 28 
Economic growth cannot be sustained unless the government pays immediate attention to the development of infrastructure in the country.

Projecting a wide gap in the demand and supply of infrastructure facilities, the survey has urged the government to evolve a stable regulatory framework and ensure commercial returns to encourage private investment in these sectors.

�In an aggregate sense, the widening gap between demand and supply of infrastructure continues to raise questions concerning the sustainability of economic growth in future,� the survey noted.

Taking the example of the power sector, it said against a target of additional capacity of 2,308 megawatt in April-October 1999, only 1,958 mw could be added.

The two sectors where the reform process should be accelerated are power and ports. The survey observed that the financial strength and management styles of state electricity boards (SEBs) and port trusts should be improved at the earliest.

According to the survey, the hidden subsidy to agriculture and other sectors has increased from Rs 7,248 crore in 1991-92 to Rs 29,807 crore in 1998-99 and is projected to go up to Rs 37,604 crore in 2000-2001.    

Mumbai, Feb 28 
Things are looking up at the country�s largest mutual fund. The Unit Trust of India (UTI) today unwrapped stunning first-half numbers, the highlight of which was a phenomenal 240 per cent surge in its net income at Rs 6,046 crore.

The spectacular gains came on the back of a remarkable turnaround in the fortunes of the flagship US-64 scheme, which reported a breathtaking 198 per cent increase in net income at Rs 1,189 crore for the half year ended December 31 1999.

Announcing the results at a press conference here today, UTI chairman P.S. Subramanyam said the market value of investible funds appreciated 51 per cent to Rs 72,698 crore. In US-64 alone, the gain was Rs 19,923 crore (Rs 12,433 crore on December 31).

�The US-64 scheme has come a long way since 1998, when it had negative reserves arising from depreciation in the value of equities. But, it has emerged stronger following the continuous improvement in capital market, coupled with measures taken by us to restructure the portfolio, besides proactive fund management,� Subramanyam said.

The UTI chief exuded optimism about the future, saying lower interest rates, benign inflation and an increase in the breadth of the stock market rally will keep stock valuations high.

So remarkable has been the change in UTI�s performance that it now has a surplus in its reserves worth Rs 3,581 crore compared with a negative Rs 2,597 crore in 1998. After an income distribution of Rs 4,120 crore, the reserves and surplus stood at Rs 8,716 crore as against a negative position of Rs 661 crore on December 31, 1998.

The unit capital under all the schemes of UTI swelled by 15 per cent to Rs 55,619 crore (Rs 48,404 crore).

The market value of US-64�s equity portfolio has gone up by 54 per cent to Rs 15,799 crore on December 31, 1999 from Rs 10,254 crore a year ago.


On the Gujarat Ambuja-ACC issue, UTI chief said financial institutions will take a view after Sebi comes out with its findings. The Sebi has raised questions on whether the partial divestment of stake by the Tatas in ACC amounted to a change in management control. If Sebi thinks there has been a change, Gujarat Ambuja would be required to make an offer to the other shareholders.

However, Subramanyam made it clear that the institutions are not opposed to the fact that Narottam Sekhsaria has been named the vice-chairman of ACC � a largely non-executive position. According to sources, the Tatas will also wait for the market regulator to take a decision before selling off their remaining shares in ACC to Gujarat Ambuja.

Recast fund

UTI will launch its corporate restructuring fund in April. Initially, it will set a target of $ 45 million. AMP, the Australian insurance major which is a partner in UTI�s planned infrastructure fund, will be an ally in launching the corporate recast fund.    

Mumbai, Feb 28 
The Bombay Stock Exchange (BSE) sensitive index today gained 117.61 points in volatile trading.

Cyclicals and fast-moving consumer good (FMCG) scrips were more in demand, displacing infotech stocks which have been so dear to marketmen of late.

The sensex opened strong at 5737.53 only to meet with sustained resistance to come down to an intra-day low of 5580.05. However, the predictions of the Economic Survey on the capital market and with the entry of speculators and foreign institutional investors, the bellwether index was lifted it to 5740.69, a rise of 117.61 points or 2.09 per cent.

�The markets are a little nervous,�� said Ramesh Damani, a prominent BSE broker. He is mainly worried about infotech stocks. �Valuations are so stretched that someone has to pay a price.� It is very difficult to forecast the movement of infotech stocks as it depends on many extraneous factors such as trends on the Nasdaq, he added..

An institutional dealer said the preference for FMCGs and cyclicals is nothing but bargain hunting by operators. �The market has gone through an unbelievable phase. Its a little nervous and jittery today,� the dealer said.

Vallabh Bhansali of Enam Financials found the mood to be cautious. �It was not upbeat, nor was it downcast, a case of general wavering,� he said.

There was heavy demand for refinery, public sector and infrastructure stocks as the market expects these sectors to benefit from the budget proposals. Foreign investors also bought sizeable stocks of MTNL, Reliance Industries and refinery companies.

In the specified group, about 50 scrips touched the upper circuit filter, while 27 counters showed losses. HFCL rose by Rs 43.55 to Rs 1701, RIL by Rs 16.40 to Rs 338.50, Bhel by Rs11.40 to Rs 154.40, Colgate by Rs12.70 to Rs 171.70, Glaxo by Rs 37 to Rs514, Grasim by Rs24 to Rs 324.20, HPCL by Rs11.35 to Rs153.85, Hindalco by Rs 31.90 to Rs 790, ICICI by Rs12.60 to Rs170.60, However, Global Tele dipped by Rs 72.10 to Rs 2264, HLL by Rs28.60 to Rs3070.40, Infosys by Rs185.95 to Rs8555 and NIIT by Rs 31 to Rs 2419.    

New Delhi, Feb 28 
There are happy tidings from India�s factories. Industrial growth has finally recovered to a healthy 6.2 per cent between April and December 1999 compared with a poor 3.7 per cent in April-December 1998.

The Economic Survey points out that the cyclical downturn of the last two years is now behind us, and forecasts that the contribution of manufacturing to the gross domestic product (GDP) � a measure of sector�s vibrancy relative to others � will almost double to 7 per cent from 3.6 per cent recorded in 1998-99.

However, despite the upbeat mood, the survey has added a word of caution by saying there is an urgent need to carry out legislative reforms �to facilitate rapid redeployment of investment from unproductive to productive lines of activity�.

It has called for restructuring of public sector enterprises and improvement in corporate governance. Infrastructure constraints in roads, power and telecom need to be removed by creating higher capacities and introducing promotional � as opposed to protective policies � for the small scale sector.

That apart, the survey reminds that India will have to face and surmount challenges posed by new technologies such as internet and e-commerce.    

New Delhi, Feb 28 
The internet may deny finance minister Yashwant Sinha the privilege of basking in the limelight all by himself on budget day. As Sinha presents the first budget of the millennium, internet portals have lined up plans to bask in the reflected glory.

While all eyes will be on Sinha, the portals are trying to ensure that they will be rooted to their sites.

Some sites have lined up a panel of judges sitting in ten different places in the country, to discuss all the nuances of the budget, while others want pollsters and punters to try their luck on quizzes, draws and polls. Yet others will webcast serious analysis by in-house experts.

Even as Sinha holds forth on the state of the country�s finances, the finance minister�s account itself will come up for analysis on sites such as, and

Also,, a portal devoted exclusively to the budget, will provide all minute details of Budget 2000, besides featuring comparisons with the previous year�s budget. It has seven different sections covering issues like income tax, industry analysis, interviews and polls, complete with a quiz.

Another portal, will handle queries on tax-related aspects in the budget.

Meanwhile, portals like are likely to provide highlights of the event on a ticker.

Not to be outdone, all the major internet service providers like Videsh Sanchar Nigam Ltd (VSNL), Mahanagar Telephone Nigam Ltd (MTNL), Mantra Online and Satyam Online will be presenting a live coverage of the budget.

MTNL, in a maiden effort, will dish out live coverage of Sinha�s fiscal jugglery at its site �It is a new medium and expectations are high. Each company which is in the internet or in internet-related business will have to meet the expectations. We are also presenting the budget live on the internet for the first time,� said S. Rajagopalan, chairman and managing director MTNL.

�We plan to offer on-the-spot analysis for each sector. In addition, answers to questions on the budget would also be provided by a panel of specialists. A few surprises are also in store for those visiting our site,� said a marketing executive,

If Sinha�s task is not going to be easy, nor will it be a bed of roses for the portals. Technical experts are playing spoilsport, with a word of caution for those gripped by the budget frenzy.

�These companies must remember, while demand and expectations have increased, we do not have the necessary infrastructure to meet a sudden rush on lines which are already clogged with voice and data. Also most of these companies do not have servers powerful enough to manage such a rush. We experienced the problem of being unable to get connected to the site, when board exam results were announced on the Net,� said a senior manager at Satyam Online.    

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