FM may meet deficit target with cheaper credit

NEW DELHI: It''s not just corporates that are taking advantage of the precipitate fall in global and domestic interest rates. The biggest borrower of all, the Central government, is likely to dramatically reduce its expenditure, by close to Rs 15,000 crore, on account of reduced interest costs and loan pre-payments by PSUs, who are also borrowing from the market at much lower rates.
If the budgeted capital expenditure, returned to the Centre unspent, is added to this, the total saving could go up to Rs 20,000 crore as against the budgeted figure, say sources.
Thus, without undertaking any real expenditure restructuring, or increased revenue realisation, the government would manage to deflate its fiscal deficit purely through reduced interest costs, high loan recoveries from PSUs and unspent capex budget.
Even States are paying back high-cost loans to the Centre and replacing them with cheaper debt from small savings. This would also bulge loan recoveries way beyond what has been budgeted.
This magnitude of savings is unprecedented in the recent history of budgeting by the Centre. While the total interest payments budgeted during ’02-03 are Rs 1,17,390 crore, the actual interest paid could be no more than Rs 1,09,000 crore.
Many PSUs whom the government had lent at higher interest rates are returning the money to the respective Central government departments and accessing much cheaper money from the market.
This has caused loan recoveries to bulge this year. Finance minister Jaswant Singh has also begun the process of asking departments to return capex budget unspent. From the defence ministry alone about Rs 3,000 crore could be returned.
All the above heads aggregated could save the Centre about Rs 20,000 crore as against the budgeted figure. This could take care of the expected revenue shortfall of Rs 12,000 crore as well as the shortfall in disinvestment receipts of Rs 6,000 crore, officials say. The fiscal deficit target could thus be met.
Analysts, however, assert that a fiscal deficit target met in this manner would not lead to any qualitative correction in expenditure or revenue raising patterns.
But finance minister Jaswant Singh can truly claim to have met the target for the first time since the BJP-led NDA government took charge in 1998. Did someone say last year that Jaswant would prove a lucky finance minister, if not anything else?