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The Budget projection of containing the Centre's fiscal deficit at 4.1 per cent of gross domestic product (GDP) for the current financial year - which finance minister Arun Jaitley initially termed 'challenging' - now looks within reach as the annual bill for food and fuel is likely to be lower than the Budget projections, while receipts from stake sale in state-owned companies are set to exceed the target.
According to back-of-the-envelope calculations by the finance ministry, softer crude oil prices might save the exchequer Rs 8,000 crore this year. It will also get the benefit of a stronger rupee and decrease in diesel under-recovery (the notional loss made by oil companies for selling fuel below market price). Some experts say all these factors could even increase the savings to about Rs 15,000 crore.
"We may save around Rs 8,000 crore towards fuel subsidy. There will be some savings in food, too," said a finance ministry official who did not wish to be identified.
Global crude oil price of Indian basket was $98.11 a barrel on Monday, remained below $100 the next day and just crossed $100 on Wednesday. The finance ministry had estimated it at $108 a barrel, while projecting fuel subsidies at Rs 63,427 crore this year.
"If crude oil prices and currency remain at the same level, that would give comfort to the government," said Devendra Pant, chief economist, India Ratings. He added the savings could be higher than Rs 8,000 crore as there might not be any under-recovery on diesel for almost half of the year.
The food bill might also be lower than the projected Rs 1.15 lakh crore, because of some states' reluctance to implement the National Food Security Act. The extended deadline for implementing the law will expire next month, but only 11 have started the scheme so far.
According to officials, as states are finding it difficult to identify the beneficiaries of the scheme, the deadline might be extended and this would entail lower subsidy outgo. As a result, there would hardly be much excess over food subsidy from what was spent last year (Rs 92,000 crore).
Pant, however, stuck to his fiscal deficit target of 4.3 per cent for the current year as "a lot depends on what the government rolls over to the next year" in terms of major subsidies.
The deficit has already touched over 60 per cent of budget estimates in just four months, but the ministry is hopeful that revenue would rise much higher and expenditure come rise at lower pace as the year progresses .
With markets scaling new highs, the government expects to collect more than the Budget target of Rs 58,425 crore from stake sale, including residual equity dilution in Hindustan Zinc, BALCO and offloading of SUUTI's stake in private companies. Although not a single issue has hit the market yet, the Cabinet Committee on Economic Affairs had cleared on Wednesday two mega offers -Oil & Natural Gas Corporation and Coal India - which together might add about Rs 42,000 crore to the government coffers. Besides, stake sale in NHPC was also approved, which is likely to provide another Rs 3,000 crore to the government kitty.
"We are very confident that we will get better numbers than the numbers for divestment given in the Budget," finance secretary Arvind Mayaram had said last month.
A higher surplus from the Reserve Bank of India will also come to the aid. Last month, the central bank transferred its surplus of Rs 52,600 crore to the government, against Rs 33,000 crore last year.
However, if indirect tax collections, pegged 26 per cent higher than last year, do not keep pace with the economic growth, it could force the government to go for expenditure cuts as it did in the past two years, or show a higher fiscal deficit.
Indirect tax collections in April-July this year have increased merely by 3.9 per cent over the corresponding period of the previous year.
"First quarter GDP growth trend is very encouraging. That gives some hope for improvement in tax collections," said Pant of India Ratings.
In a meeting with rating agency Moody's this month, India had pitched for an upgrade, stressing the fiscal deficit target would be met. The government's cash position is comfortable as it has already slashed its borrowing target for April-September by Rs 16,000 crore.
