The Telegraph
Since 1st March, 1999
Email This PagePrint This Page
Fiscal pressure mounts

Mumbai, Sept. 9: The postponement of big ticket disinvestment plans has elevated fears that the country’s fiscal condition is set to deteriorate as burgeoning expenditures zip past unhurried revenue collections, budgeted figures of which now seem unattainable.

Some analysts even warn that the country’s fiscal deficit would widen to 6 per cent of its gross domestic product (GDP) and last weekend’s deferment would make the task even more difficult for the Centre.

Revenue collections may take a hit as industrial growth suffers due to the drought. Expenditure will go up while meeting the states’ demands for drought relief and on account of higher subsidies.

“The impact on the country’s fiscal deficit could be huge. It now seems that on the revenue side the budgeted figures were optimistically set and a shortfall in this target looks very much on the cards,” said Sanjit Singh, vice-president, ICICI Securities while reacting to the Centre’s decision.

It is now estimated that as against the initial estimates of a 30 per cent year-on-year growth in revenue collections, a shortfall of close to 6 per cent is more likely as the economy shifts into reverse gear due to drought. Analysts add that on the fiscal deficit front, this figure could now touch Rs 1,50,000 crore against the budgeted Rs 1,35,000 crore.

“We expect a fiscal deficit of 5.8-6 per cent of the country’s GDP, higher than 5.3 per cent as budgeted by the government,” said another analyst.

Observers now expect the government to go ahead with sales in Nalco, Madras Fertilisers Ltd and Shipping Corporation of India even as they aver that successful divestments in these cases could still leave the government with a shortfall of Rs 6,000 crore over its targeted divestment figure of Rs 12,000 crore. In case of Nalco, however, opposition to selloff is already building up.

However, there are others who are not yet pressing the panic button. Saumitra Chaudhari, chief economist at Icra, told The Telegraph that higher fiscal deficit should be of least concern as the disinvestment in both the oil majors were unlikely to happen this fiscal. “What should be more worrying is that the privatisation process has received a setback,” he added.

Subir Gokarn, chief economist, Crisil, also struck a positive note. He said with a better contribution from industry this fiscal the country’s GDP could be rescued. The prevailing low rates of interest could also lead to easing pressure on the government’s revenue expenditure as it could retire its high cost debt that were incurred during the late nineties with cheaper rates of longer maturity, he added.

Analysts do not expect the international credit rating agencies to pare down the country’s sovereign ratings immediately. However, they feel that the agencies may maintain the negative outlook. Chaudhari said that last weekend’s decision has only confirmed the concern expressed by such agencies on the government dragging its foot on policy issues that included privatisation.

Email This PagePrint This Page