Despite oil cushion, low sell-off proceeds could impact deficit

By: | Published: August 4, 2015 8:47 AM

DK Pant, chief economist India Ratings pointed out that the low crude oil prices have given a cushion on the oil subsidy as well as have led to higher collection of excise duty that jumped to Rs 37,545 crore in the first quarter of the fiscal.

oil pricesDK Pant, chief economist India Ratings pointed out that the low crude oil prices have given a cushion on the oil subsidy as well as have led to higher collection of excise duty that jumped to Rs 37,545 crore in the first quarter of the fiscal. (Reuters)

The Centre’s financial health still seems to be in the positive five months down the fiscal, with at least Rs 40,000 crore savings on oil subsidies on the back of the low global crude oil prices apart from savings that are likely to accrue from the roll out of the direct benefit transfer.

But concerns have already started mounting over the realisation of proceeds from disinvestment that are crucial to meet the fiscal deficit target.

“As of now, our fiscal position is well under control. There will be substantial savings from the low global crude oil prices. Also subsidy reforms such as the capping of kerosene subsidy will also help cut down the subsidy bill,” said a senior finance ministry official.

For 2015-16, the Centre has a more relaxed fiscal deficit target of Rs 5,55,649 crore or 3.9 per cent of the GDP.

However, additional expenditure in the first supplementary demand for grants, including the planned Rs 13,000 crore allocation for bank re-capitalisation are beginning to raise concerns amongst analysts.

“As of now, there is just about Rs 3,000 crore raised from disinvestment in public sector units as against the target of Rs 69,500 crore this fiscal. There is also no clear strategy on strategic sales of government equity in PSUs, so it is a mammoth task ahead to raise these proceeds,” the official added. A clearer picture will emerge by the end of next month, when the finance ministry and the Reserve Bank of India will get together to chalk out the market borrowing plan for the second half of the fiscal.

However, official data reveals that the Centre’s fiscal deficit rose to 51.6 per cent of the full year target in the first quarter of the fiscal with tax receipts buoyant at Rs 1,01,685 crore or 11.1 per cent of the full fiscal target while total expenditure was Rs 4,30,993 crore in the first quarter.

DK Pant, chief economist India Ratings said, “The deficit situation by the first quarter data looks much better compared to last fiscal. If disinvestment proceeds do not come as Budgetted then meeting the fiscal deficit target could be difficult.”

But he pointed out that the low crude oil prices have given a cushion on the oil subsidy as well as have led to higher collection of excise duty that jumped to Rs 37,545 crore in the first quarter of the fiscal.

A recent report by CMIE too has raised questions on the government’s tax revenue and warned that it may have to compromise on Plan expenditure for a fifth straight year. “Unlike last year, the government is expected to almost meet its tax collection target in 2015-16 … Net tax revenues, however, are expected to fall by one per cent on account of higher devolution of union taxes to the states,” said its Economic Outlook, adding that meeting the fiscal deficit target could be difficult in 2015-16 due to concerns over disinvestment proceeds and use of one-time payment received against the spectrum auction for fiscal contraction in the first two months of the fiscal.

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