Contrary to the underlined pessimism expressed by the Kelkar Committee with regard to the likely disinvestment proceeds during 2012-13, the government, on Friday, appeared confident in mopping up about Rs.25,000-30,000 crore through sell-off of the Centre’s equity in public sector undertakings (PSUs) and thereby remain as close as possible to the fiscal deficit target of 5.1 per cent of GDP (gross domestic product) set for the financial year.
At a press briefing here to present the government’s stance on the recommendations of the ‘Report of the committee on roadmap for fiscal consolidation’ headed by 13th Finance Commission Chairman Vijay L. Kelkar, Economic Affairs Secretary Arvind Mayaram said: “There is now a decision for disinvestment in several PSUs. Some more are under consideration. And, therefore, we believe that we could net about Rs.25,000-30,000 crore from that itself…Then there is spectrum auction, which is on stream. We have a target of Rs.40,000 crore…”
Dr. Mayaram’s statement needs to be seen in the light of the Kelkar Committee report pegging the receipts from disinvestment this fiscal at Rs.10,000 crore, way below the budgeted target of Rs.30,000 crore.
In its report, the committee said: “It would be extremely difficult for the government to move ahead with its disinvestment programme, given the subdued equity market conditions. In our assessment, a conservative estimate for disinvestment receipts, if no policy interventions are made, would stand at around Rs.10,000 crore”.
Asserting that policy interventions were in the pipeline and the government was watchful and would take steps to curb wasteful spending as also plug leakages in the implementation of various social and welfare schemes, Dr. Mayaram said: “Wasteful expenditure, if any, will be strongly curbed and, therefore, I am confident that we will be able to come pretty close to our fiscal deficit target...We are cognizant of the fact that there could be a possibility [of wasteful expenditure]...we will be watchful”.
Even as the fiscal deficit during the April-August period this fiscal spiked to Rs.3.38 lakh crore or about 66 per cent of the budgeted target of 5.1 of GDP for the entire fiscal year, the DEA Secretary pointed to a development in the currency market which many may have not taken into account. Dr. Mayaram was referring to the steady appreciation of the rupee against the U.S. dollar.
“If rupee further strengthens, which we hope it will, with the steps the government is taking, we expect it could even touch 50 in the next three or four months…,” he said while pointing to appreciation of the Indian currency to an over five-month high of 52.49 against the greenback to end the day’s trading at 52.85 on the back of strong capital flows and hopes of more policy reforms.
“Now there is a much better foreign exchange management in terms of flows on account of decision that the government has taken in the last two to three weeks. We expect higher FDI flows to come into the country. So the pressure on the rupee is decreasing to that extent,” Dr. Mayaram said while maintaining that the appreciation of the rupee would help in reducing the subsidy bill and containing inflation.
The net positive impact of a hardening rupee would be a lower import bill for petroleum products, considering that 80 per cent of the requirements are met through imports.
“(As and when the rupee strengthens further] our subsidy burden will go down even further…We expect inflation to come down because of that…A one rupee change [vis-à-vis the U.S. dollar] gives you about eight basis points of drop in inflation,” the DEA Secretary said.
“We are expecting that we will be able to come very close to our fiscal target if we are prudent in our expenditure where all important critical expenditure commitment will be fully met,” he said.
