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 Centre’s cash position and funding requirements, the RBI said the government’s 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