Higher subsidies to push fiscal deficit over 6%

Oil Marketing PSUs Face 2L Crore Loss New Delhi: The government is slowly reconciling to the prospect of ending the year with a fiscal deficit of over 6% of gross domestic project, sharply higher than the 5.1% it has budgeted for, due to its inability to reduce subsidies, especially on fuel.      Sources said that internally there is acknowledgement that the fiscal deficit—the difference between spending and tax and nontax revenue and disinvestment receipts—would be much higher than the calculations made by Pranab Mukherjee when he presented the Budget in mid-March.      The finance ministry is learned to have communicated the position to Prime Minister Manmohan Singh, who has repeatedly flagged the issue but has failed to get his allies on board to raise the prices of diesel, leave alone deregulating it, kerosene and cooking gas.      As a result, oil marketing companies such as IndianOil are now staring at combined under-recoveries of around Rs 2 lakh crore this fiscal. If prices are not raised, the losses would be higher than the three key subsidies—food, fuel and fertilizer—which were projected at Rs 1.7 lakh crore in this year's Budget.  NMDC, Nalco stake sale on The government on Friday set the ball rolling for selling stake in Nalco and NMDC, which could help it mop up around Rs 9,000 crore. Merchant bankers are being appointed and the stake sale will be through stock exchanges or auctions. This year, the government is hoping to garner Rs 30,000 crore through the sale of shares via the public offer and auction route. P 21 All fuel prices to be hiked next wk? An increase in motor and domestic fuel prices is likely as early as next week once the Union Cabinet's committee on political affairs decides on raising street prices of diesel and cooking gas. "We have to take some difficult, painful decisions," oil minister Jaipal Reddy said on Friday, indicating that an across-the-board hike was in the offing. P 11  Sensex soars 337 points on global rally      The rub-off of a global market rally on European Central Bank's plans to buy bonds to support struggling economies in the continent led to frenzied buying on Dalal Street on Friday. The mood lifted the sensex by 337 points—its biggest single-session gain in over two months—to 17,684. The rally came on the back of strong FII buying with all the 30 sensex stocks closing with gains. Going forward, the government's decision on petro product prices could be an important trigger for the market. P 21 Govt facing 40k cr hole due to subsidies  New Delhi: What may add to the subsidy bill is the prospect of fertilizer subsidies topping the budget estimate of Rs 61,000 crore as the government failed to push through an increase in urea prices with the minister M K Alagari himself not keen on an increase. A committee of experts, including Vijay Kelkar, who had charted the fiscal correction roadmap during UPA-I is also learned to have come to a similar conclusion, although the panel's report is yet to be made public. Even the steps to better target the subsidies by linking it to Aadhar and a mobile-based fertilizer management system have been slow off the starting block. While finance minister P Chidambaram has virtually ruled out sanctioning fresh schemes and increasing the allocation for ministries, there is already a clamour for sops for exports and segments such as special economic zones to boost investment.      The demands come at a time when revenue collections too are under pressure due to economic slowdown, although the finance minister had this week predicted that a pick-up in the second half would help meet the direct tax target. Still, officials point out, that there is a Rs 40,000 crore hole that needs to be filled up as former FM Pranab Mukherjee had hoped to raise the amount from companies such as Vodafone, for which the law was amended retrospectively.      On the receipts side, there are at least two other variables that officials are grappling with—the disinvestment proceeds and revenue from the auction of 2G spectrum. The government is yet to raise a penny from stake sale this year against the target of Rs 30,000 crore, while the spectrum sale was expected to fetch Rs 40,000 crore.  THE FISCAL ARITHMETIC  EXPENDITURE      Based on current price trends, oil companies staring at underrecoveries of 2 lakh cr this year, if cooking fuel and diesel prices are not revised. In the budget, govt had set aside 43,580 cr under this head, which has been used to clear past dues      Hike in price of urea, other fertilizers nearly ruled out. May result in higher-than-budgeted subsidy of 61,000 crore      Finance ministry fears higher subsidy may upset expenditure calculations, despite monitoring      There are demands for sops to boost exports, kick-start investment  REVENUE      Economic slowdown may impact tax collection — direct as well as indirect     No receipts from disinvestment against budget target of 30,000 crore      Uncertainty over 40,000 cr govt had hoped to mop up from companies like Vodafone after the retrospective amendments Times View: Govt can't avoid tough choices      The time for the government to bite the bullet and take some tough calls is here. Increasing fuel prices or targeting subsidies more accurately at those who really need them are admittedly politically difficult decisions, but good governance can't avoid tough choices. What the government must realize, and explain to the public at large, is that a fiscal deficit out of control is not its problem alone. It will fuel inflation, which hits the poor man worst. The poor have more to lose from a policy that allows inflation to gallop than from one that prunes subsidies for those who don't really need them.