After stellar spectrum show, RBI defers Rs 15,000-cr govt bonds

Written by Arup Roychoudhury | New Delhi | Updated: Feb 7 2014, 20:04pm hrs
RBIRBI said govt's total borrowing plan for FY14 will hence be reduced by the same amount, to about Rs 5.64 lakh cr from Rs 5.79 lakh cr. PTI
The Reserve Bank of India (RBI) on Wednesday said that a deferred auction of government bonds worth Rs 15,000 crore stood cancelled. Citing the Centres cash position and funding requirements, the RBI said the governments total borrowing plan for FY14 will hence be reduced by the same amount, to about Rs 5.64 lakh crore from Rs 5.79 lakh crore.

This move by the government and the RBI was considered impossible till even a month ago as lower-than-expected tax revenues and disinvestment proceeds led many to believe that finance minister P Chidambaram would find it difficult to meet his often-promised fiscal deficit target of 4.8% of GDP for FY14.

However, things have moved fast on the disinvestment front and the ongoing spectrum auctions have garnered better-than-expected receipts for the government. In three days, some Rs 50,000 crore worth of bids have come in (and the flows are still to dry out), out of which the government will count one-third in its books for this fiscal. That amounts to about Rs 17,000 crore compared to the department of telecom's target of Rs 11,000 crore from the auction. The total budgeted target for the year, including license fees and other charges, is Rs 40,000 crore. It is also possible some telcos would not opt for deferred payment, which will increase the revenues for this fiscal.

This sends a positive message to the markets. Those who look at cash management on a day-to-day basis decided this auction could be cancelled, a senior finance ministry official told FE. The official added that the expected revenue impact of ongoing spectrum sales and the proceeds from special dividends by public sector companies played a big part in the decision to withdraw the auction.

There are now stronger expectations that the fiscal deficit target of 4.8% can be met. Apart from the revenue side, there has also been a lot of work on cutting expenditure. This shows the government's confidence in terms of its fiscal targets, Prof NR Bhanumurthy of National Institute of Public Finance and Policy said. The deficit, official sources said, could be even lower by 1-2 percentage points.

Faced with a shortfall in tax and non-tax revenue, the government has been aggressively cutting spending. Nearly R1.2 lakh crore in food, fuel and fertiliser subsidy payments are expected to be rolled over to FY15 while on the plan-expenditure front, some Rs 80,000-1,00,000 could be cut. According to reports, the finance ministry has even proposed cuts amounting to over Rs 20,000 crore in spending on popular flagship schemes like the employment guarantee scheme, the rural housing scheme, the village roads scheme and the livelihoods mission.

Meanwhile, after initial resistance from almost all companies and ministries with a stake in the centre's R40,000-crore disinvestment plans, things seem to have fallen in place. CIL has agreed to pay its highest-ever special dividend of Rs 18,317 crore, of which the centre will get Rs 16,485 crore. FM has made it clear that he will not accept dividends lower than last years from state-owned companies.

Additionally, ONGC and Oil India will pick up a combined 10% stake in Indian Oil for about Rs 5,000 crore. also expected is 5% divestment in BHEL through cross-holding by other PSUs. Still on tap are an expected 10% stake sale in EIL and Hindustan Aeronautics each and the centre is also hoping to raise Rs 3,000 crore through an exchange-traded fund it will launch next month while a planned sale of the stake that SUUTI holds in Axis Bank is expected to yield Rs 7,200 crore.