Bridging the fiscal gap

The change in the way the National Investment Fund (NIF) corpus is used for three years may impact the fiscal deficit only partially but even a conservative estimate suggests that the government could take care of the almost entire capital expenditure on social programmes for the current financial year.

Till the last financial year, the NIF corpus stood at Rs 1,815.45 crore comprising proceeds from disinvestment in Rural Electrification Corporation (REC) and Power Grid Corporation. Though Finance Minister Pranab Mukherjee had said earlier this week that the government had not fixed a fresh disinvestment target for this financial year, the government has already earned Rs 4,260 crore from the disinvestment of 5 per cent in NHPC and 10 per cent in Oil India Ltd. The money is lying in the Consolidated Fund of India (CFI) but will be credited to the NIF and then used for capital expenditure in specific social sector schemes to be identified by the Planning Commission and the department of expenditure, said a senior finance ministry official.

With the decision to disinvest NTPC, REC and Satluj Jal Vidyut Nigam already taken, another Rs 11,000 crore could come in based on current market valuations. NMDC and MMTC could swell the kitty by another Rs 24,000 crore. This would mean the government could get roughly Rs 38,260 crore from disinvestment this year -- almost equivalent to this year's outlay for the rural employment guarantee scheme (Rs 39,000 crore).

The government’s total capital plan expenditure for 2009-10 is Rs 46,751 crore. The earlier decision of using only the income from the NIF corpus has given the government only Rs 291 crore in two years.

The fiscal deficit at Rs 4,00,996 crore is estimated to be 6.8 per cent of GDP for the current year, 1 per cent of which was on account of higher salaries and pensions paid to government employees under the sixth pay commission.