Policy makers at North Block, which houses the finance ministry, are splitting hair to negotiate through a fiscal tightrope, barely three months ahead of the budget for 2013-14.
The unexpectedly cold response to 2G telecom spectrum auction and the likelihood of lower-than-budgeted earnings from disinvestment in state-owned companies has upset the government's fiscal math at a time when the top financial administrators are wrestling to reverse a sharp slowdown in the broader economy.
The government's ambitious plan to raise valuable revenues by auctioning 2G telecom spectrum virtually came unstuck last week with operators offering bids worth only Rs. 9,407 crore prompting the telecom ministry to call off the process on the second day itself.
The auction, carried out after the Supreme Court had struck down spectrum allocated in 2008 on a "first-come-first-served" basis as "unconstitutional", fetched the government less than a quarter of Rs. 45,000 crore it had expected on the basis of the reserve price if the companies had bid for all the radio waves put on the block.
Weak market conditions have also raised questions on about the government's ability to raise the Rs. 30,000 crore by selling off Centre's equity stake in identified public sector undertakings (PSUs) in the remaining four months of the current fiscal.
The cabinet has approved disinvestment in Hindustan Copper, Nalco, SAIL, Rashtriya Ispat Nigam, BHEL, Oil India, MMTC and NMDC, but as of now, owing to uncertain market conditions, the government has not been unable to raise any funds through disinvestment.
The less-than-anticipated spectrum auction proceeds will also widen the fiscal deficit-shorthand for the amount of money the government borrows to fund its expenses.
"While we had pencilled in a slippage, our estimate of Rs. 25,000 crore from the spectrum auction now seems very optimistic," said Sonal Varma of Nomura.
Last month, finance minister P Chidambaram had unveiled plans to reduce India's fiscal deficit to 3% of GDP in five years demonstrating the government's intent to walk the talk on fiscal discipline
High subsidies have widened the government's fiscal deficit-shorthand for the amount of money that it borrows to fund its expenses-limiting its elbow room to spend on investing in infrastructure and development schemes to spin jobs and multiply income.
The five year plan involves reining in fiscal deficit to 5.3% of GDP in this fiscal years and gradually narrowing it down to 3% by 2016-17.
Experts said these targets would be difficult to achieve.
"The results (of the 2G spectrum auction) imply an additional 0.2 percentage points of fiscal deficit slippage. The government's revised fiscal deficit target (5.3% of GDP) still looks difficult to achieve," said Varma.