Explore new avenues for revenue, RBI tells govt:

       RBI warns that the government may find it difficult to stick to its fiscal deficit target in the current fiscal year...

 

           The Reserve Bank of India (RBI) warned on Thursday that the government may find it difficult to stick to its fiscal deficit target in the current fiscal year, given the impact of the economic downturn on tax collection and the depreciation of the rupee on the import bill, and called for alternative sources of revenue to be tapped. 

         RBI suggested strategic planning, including larger dividend payouts by cash-rich public sector units and stake sales in state-run companies that are likely to receive investor interest and attract higher prices.

         The national budget unveiled in February projected the fiscal deficit at 4.8% of gross domestic product (GDP), relying on higher tax revenue and disinvestment proceeds, compared with 5.2% in the year ended March. The gvernment also counted on receipts from telecommunication licence auctions and reduction in subsidy costs.

        “However, as the Budget relies largely on revenue-led fiscal consolidation, its success would depend on the revival of investment climate and growth,” RBI’s annual report said

Economic growth slowed to 5% in the year ended March, and RBI forecast it to improve only marginally to 5.5% in the current year.

         “The economy is currently cruising in slow speed mode along a rough road. Strategically, it is necessary to first pitch the rough spots by putting in place a set of complimentary policies to address the structural constraints,” the RBI report said.

The central bank said that “with growth likely to be lower, it may be difficult to achieve the budgeted tax-GDP ratio of 10.9% even with the budgeted tax buoyancy of 1.4% during 2013-14”.

  

           The government plans to raise Rs.40,000 crore through disinvestment in government-owned firms and Rs.14,000 crore by selling its residual shareholding in non-government companies.

  

           Even as the government plans to contain subsidies at 2% of GDP through various measures, including a phased deregulation of diesel prices, “the volatility in the exchange rate may exert upward pressure on fuel and fertilizer subsidies in 2013-14”, RBI said.
 

           The under-recoveries of oil companies—the shortfall in revenue from selling oil products at below cost—have risen sharply due to exchange rate depreciation and a rise in global crude oil prices, combined with lagged adjustment of prices and vestiges of administered price mechanisms prevailing in the sector.


GAURI KESARWANI
PGDM- Ist sem.
Aug, 23rd-2013.