Financial health of govt-owned entities adds to deficit woes

Written by Sunny Verma | New Delhi | Updated: Mar 8 2012, 09:23am hrs
Even as the Centre battles ballooning account deficit, the financial health of major government commercial departments, fully owned undertakings and the railways has deteriorated sharply over the years. The surplus funds available with these entities have slumped to R474 crore in 2010-11 from R15,627 crore in 2008-09 and R4,848 crore in 2009-10, as per data released by the finance ministry on Tuesday.

This means finance minister Pranab Mukherjee could have to provide extra funds to these entities to refill their reserve funds. Alternatively, these entities will have to improve their profits and allocation to the reserve funds.

Reserve funds are typically accumulated over the years to meet specific spending needs such as capital expenditure.

The interest-bearing reserve funds have been declining steadily since 2007-08. This is mainly because of drawdown from the railways, which is facing a fund-crunch. A government panel recently estimated that the railways would need a massive R8 lakh crore in the next five years for modernisation. Half of the funding is estimated to come from budgetary resources of the Centre.

Reserve funds related to railways such as railway depreciation reserve, railway development fund and railway capital fund are showing negative balance amounting to R2,899 crore at the end of March 2011, which needs to be reversed by recouping the additional drawdown from past by transferring necessary funds from current revenue, the ministry said in a status paper on government debt.

Apart from government undertakings, state-owned companies such as Air India too are in a financial mess.

The airline is restructuring its R18,000-crore debt. Deterioration in these entities indicates that the fiscal situation of the government is worse than indicated by the fiscal deficit numbers. As on January, the government's fiscal deficit touched 105% of the budget estimates.

Analysts expect the fiscal deficit to come close to 5.9% by March-end 2012, much higher than the 4.6% estimated in the budget. This would force government to borrow higher amounts from the market next fiscal. The government is on course to borrow R5.1 lakh crore this fiscal, up from its budget target of R4.16 lakh crore.