Budget 2011: Govt plans to put windfall gains to productive use

NEW DELHI: The government is likely to come out with a plan for using windfall gains, such as those from the auction of 3G airwaves, more productively rather than deploying such proceeds for just bridging its fiscal deficit.

"This is a practice in many countries...We are looking at such a plan," an official told ET.

The government received a 65,000-crore bonanza from the auction of 3G and broadband spectrum in fiscal 2010-11. This was way over 35,000 crore it had budgeted from the auction. The government has used this gain to meet its additional expenditure.

"The idea of saving the proceeds in dedicated funds is a sound idea," the finance ministry's mid-year analysis had said in December.

Experts also agree. "It would be a good idea to put such funds in a dedicated fund as they need to be used a productive manner," said D K Srivastava, director of Madras School of Economics. Such a provision will also help the government mount a stabilisation policy and use the fund for providing fiscal stimulus in years of downturn, he added.

The finance ministry's analysis had also advocated such a use. "A related process may be to eventually allow the build-up of such assets in years where cyclical revenue gains or similar gains from sales of assets or other sources are large, and running them down faster in times of cyclical downturns or other circumstances, allowing greater room for counter cyclicality in fiscal policy," it had said.

With the fiscal deficit for 2010-11 expected to be much lower than the budgetary estimates of 5.5% of GDP, the timing may just be right for such a move. "Revised estimates in the Budget will present a better number on fiscal deficit, so the time may be opportune for such a move," Srivastava said, adding that going forward good normal tax revenues would let the government achieve its fiscal consolidation target.

Some countries, such as Chile, have operated stabilisation funds to manage their fiscal policy while drawing on them for unexpected needs, like when the magnitude 8.8 earthquake devastated central Chile a year ago.

"The idea is to use proceeds from such one-time asset sales to reduce the deficit till targets are achieved under the fiscal consolidation plan and then use them for a dedicated purpose," the government official quoted earlier said.

The government had in 2005 created a National Investment Fund to park disinvestment proceeds outside the Consolidated Fund of India. The fund's income was to be used for social sector projects, such as education, healthcare and employment, and revival of public sector enterprises. However, the government in 2009 took one-time exemption to use the proceeds for two financial years to fund capital expenditure of select social sector programmes.