Finance Minister Piyush Goyal will have to do tight rope walking to present credible budget numbers when he unveils the interim budget on Friday.
Fiscal prudence may sound a conservative preposition vis-à-vis exuberant spending to put the economy on a high growth pedestal. Sticking to 3.3 per cent fiscal deficit with a percentage point here or there is the right way to steer the economy into future.
While doing so, Goyal may have had many sources to tap and put the numbers together for next fiscal with avowed objective of further pruning the deficit to three per cent. As per the medium term fiscal policy framework, this is the charted course with fiscal deficit plummeting below three per cent 2020-21. Unless there are exigencies that are unmanageable, sticking to this course is perhaps the best option for Goel that’s a stand in finance minister for Arun Jaitley who’s reportedly recuperating in New York.
Financial Chronicle in its front-page report on Wednesday gave details of the options that Goyal could exercise in providing a workable balance sheet of government finances. Sale of blue chip stock holding in SUUTI has been on table even with Palaniappan Chidambaram during UPA-1 & UPA-II. For obvious reasons, he went slow on selling the ‘family silver’ of Indian government.
Instead, Chidambaram opted for cross holding of oil and power PSUs to mop up funds to bridge the deficit figures. This time round, given that disinvestments have fetched a miserable Rs 35,000 crore, there’s every reason for Goyal to sell government stake in SUUTI holding at least in part. While the stocks with SUUTI are valued at Rs 55,000 crore, at least 50 percent may have to be realized from this source.
In fact, Goyal should go ahead and prioritise utilising the GST cess that central government continues to hold without disbursement. Given that its entitled to at least 50 per cent of the cess proceeds, around Rs 30,000 crore would be available right away. Since the Parliament has anyway given the go ahead, there’s no reason why Goel should not dip into cess fund. RBI interim dividend payout has usually been a source of funds for successive finance ministers. This time round, interim dividend would be watched keenly given the unsavoury spat between RBI and union government on reserves held by the central bank. Piyush Goyal is well within his right to access Rs 40,000 crore interim dividend from RBI provide a balanced budget even though its an election year.
National Small Savings Fund is a basket that needs to be left untouched. Instead of drawing out from this fund, it should be leveraged for implementing long-term capital-intensive infrastructure projects.
Rolling over subsidy payments to fertilizer, food and oil companies as a strategy may not be right. Chidambaram had resorted to bleeding the companies in these sectors many times over. Piyush Goyal will have to resist the temptation of repeating the old hack mistake of starving the fertilizer, food and oil companies by denying liquid funds.
In any case, oil subsidies have virtually become a thing of the past. Food and fertilizer subsidies need to be paid upfront through budget mechanism as long as the government can sustain. Piyush Goyal will do well by announcing a roadmap for bringing food and fertilizer prices in sync with the market.
Given that cash dole outs are being anyway considered for vulnerable sections, finance minister Goyal will have to bite the bullet with structural programmes that may seem unpopular but provide depth and resilience to the economy.