The government?s decision to put PSU mining giants Coal India Limited (CIL) and Hindustan Copper Limited (HCL) on the divestment block, despite continued volatility in the stock markets, shows its seriousness about meeting its divestment target for this financial year. The stake sales of CIL and HCL, via the stock market, are expected to garner the government around Rs 17,000 crore. The government?s move suggests that it senses an opportunity to cut the fiscal deficit by a significant amount this year. The 3G and BWA auctions have fetched a bounty of Rs 1 lakh crore; divestment, if it continues to proceed without political impediments, is targeted to raise Rs 40,000 crore. This will bring the fiscal deficit down to between 4% and 4.5% of the GDP, from 5.5% in the previous financial year. However, the government cannot afford to be satisfied with its efforts, largely because the revenue from the auctions is one-off. A sustained reduction in the fiscal deficit will require the government to commit to further expenditure reform.
The government did take an important step to curb fertiliser subsidies with a move to a nutrient-based regime. But on oil subsidies, the government continues to dither, despite the window of opportunity that the recession in Europe has provided?oil prices are probably at the lowest level that they are likely to be at for some time. If the government waits for complete global recovery, it will find it politically harder to decontrol at a higher price. And if it doesn?t decontrol, all the gains on the fiscal front through auctions and divestment may be lost. The government has all the expert committee reports that it would possibly need to back up a decision to decontrol. Politically, this may be a good moment, given that there are no major states except for Bihar, which are due for an election. In Bihar, the Congress and its allies in the UPA have comparatively less at stake than, say, in West Bengal and Kerala next year. The formation of the NAC is also an indication that the government will be under pressure to legislate on the food security Bill. That, too, will add to fiscal pressures. The UPA must, therefore, also look at trimming unnecessary food subsidies given out to above poverty line families. Of course, on the revenue side, an early implementation of the GST and DTC will help shore up the government?s coffers. The second year of the UPA-2 in office will be crucial in terms of major fiscal reform. The government must deliver.
