The higher-than-expected income from sale of third generation (3G) mobile spectrum has the potential to reduce government borrowing, Finance Secretary Ashok Chawla has said.
“Well, certainly likely,” Chawla said to a query of whether the government borrowing would to be lowered or not. However, he added it was difficult to assess the impact right now.
“Well, 3G has certainly given us a good amount of money, more than what the government had expected. But what will be its impact, what will be the requirement in terms of other activity, at this point in time, I don’t think I can comment what will be its immediate impact on the borrowing programme,” said Chawla, who was in the city to attend a meeting of the high-level co-ordination committee on financial markets.
The government has received bids worth over Rs 67,000 crore from mobile service operators, who have to pay the money by next week. The amount realised through the 34-day auction process was higher than the Centre’s budget estimate of Rs 35,000 crore.
“The immediate 3G inflows give additional non-tax revenues, which will certainly help us in fiscal consolidation,” the finance secretary said and added that more money could be generated from the auction of wireless spectrum that started on Monday.
In Hyderabad, Telecommunications and Information Technology Minister A Raja said the broadband wireless access (BWA) auction could generate Rs 15,000 crore for the Centre.
Resource mobilisation through spectrum auction was one of the critical elements of Finance Minister Pranab Mukherjee’s plan to lower the Centre’s fiscal deficit from 6.7 per cent of the gross domestic product in 2009-10 to 5.5 per cent this year. Already, the market has drawn comfort from the spectrum auction, with the yield on government bonds declining.
According to Bloomberg data, the yield on benchmark 10-year government bond rose marginally to 7.41 per cent on Monday as against 7.39 per cent on Friday. Though markets are expecting lower borrowings, there are no indications of a change in the calendar so far. The Reserve Bank of India said in a statement the government would raise Rs 12,000 crore through auction of bonds. The government will offer Rs 4,000 crore of 7.38 per cent, five-year notes and Rs 5,000 crore of 7.8 per cent, 10-year paper. In addition, it plans to offer Rs 3,000 crore of 8.32 per cent, 22-year debt.
Market players said the government might not alter the calendar at the moment as its fund flow was under strain. As on May 14, the government had outstanding ways and means advances of Rs 30,752 crore. It also had to issue cash management bills to access short-term funds, which have maturity of around a month.
Liquidity tightens
Chawla also said that the payment of spectrum charges by telecom companies, which would be initially funded through bank loans, was unlikely to affect liquidity in the markets.
But the impact was already visible in the money markets, with banks on Monday parking Rs 4,540 crore through RBI’s reverse repo window, used to suck out surplus liquidity from the system. Till Friday, banks were parking over Rs 45,000 crore through the window.
Banks are also expected to resort to winding down some of the funds parked with mutual funds. At the end of May 7, banks had parked Rs 1,11,956 crore with mutual funds. In the money markets, call rates also hardened a little to touch a high of 4.20 per cent on Monday. The weighted average for the day was 3.88 per cent as against 3.78 per cent on Saturday.
