Don't be complacent about fiscal consolidation, govt told

The Reserve Bank of India (RBI) on Tuesday said the Centre should not slacken efforts towards fiscal consolidation, though it had managed to receive higher-than-budgeted revenue through sale of airwaves for mobile telephony services and broadband.

Against the Budget estimate of Rs 35,000 crore, the government mopped up Rs 1,06,000 crore by auctioning third-generation (3G) spectrum to telecom service operators and those desiring to offer broadband wireless access (BWA) services. The realisation was close to one per cent of India’s gross domestic product (GDP).

“It is, however, important to ensure that this one-off increase does not slacken the much-needed efforts towards fiscal consolidation,” the central bank said, while announcing the first quarter review of the annual policy.

The higher-than-budgeted realisation from spectrum sale had raised expectations of the government opting for lower borrowings to finance its deficit. But, so far, there have been no indications to this effect. Till mid-July, the government had raised Rs 1,32,000 crore, or 38.5 per cent of its net borrowing plan of Rs 3,45,010 crore, for 2010-11.

In the wake of the global financial crisis, as also such populist schemes as the farm debt waiver ahead of general elections, the government ended up breaching the fiscal deficit ceiling of three per cent of GDP prescribed in the Fiscal Responsibility and Budget Management Act. In 2008-09, the year before the general elections, the Centre reported a fiscal deficit amounting to six per cent of GDP as it stepped up spending as part of the stimulus package.

Last year, the Centre’s fiscal deficit touched 6.7 per cent of GDP. With economic conditions improving, it hopes to close the current financial year with a fiscal deficit of 5.5 per cent of GDP.

The Prime Minister’s Economic Advisory Council, headed by C Rangarajan, had said last week the Centre could end the year with a fiscal deficit of around 5.5 per cent following the Rs 1,06,000-crore receipt from selling spectrum.

It had, however, warned the government should not only focus on raising resources to lower its deficit and had suggested that the subsidy regime be reworked. The government has already moved to a nutrient-based subsidy regime for fertilisers and is reworking the oil subsidy mechanism, including freeing diesel prices, to deal with the high level of subsidies.