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Deficit tamed?

Proceeds from auction of telecommunication spectrum, it now appears, could help the government take care of about15 per cent of its fiscal deficit, aiding an earlier-than-expected return to fiscal consolidation.

business Updated: Jun 09, 2010 22:00 IST

Proceeds from auction of telecommunication spectrum, it now appears, could help the government take care of about15 per cent of its fiscal deficit, aiding an earlier-than-expected return to fiscal consolidation.

Auction of third-generation (3G) spectrum, which ended after 34 days, has fetched the government Rs 67,719 crore. Besides, the government has already ensured a revenue of more than Rs 35,000 crore by auction of spectrum for broadband wireless access (BWA).

All told, the government is set to earn well over Rs 100,000 crore from auction of premium radio waves for telecommunication services. This is significantly higher than the Rs 35,000 crore it had budgeted to earn.

The unexpected but pleasant turn of events will be music for finance minister Pranab Mukherjee and his team of macroeconomic managers looking out for options to rein in fiscal deficit.

Fiscal deficit mirrors the extent to which the government is borrowing to fund current expenditure. High levels of government debt limit the headroom for government to spend on development programmes.

The government has budgeted for a net fiscal deficit of Rs 3,45,000 crore in 2010-11. It now appears that the additional revenue from auction of 3G telecommunication spectrum will bring down the deficit by about Rs 55,000 crore.

Mukherjee has set out a medium term roadmap to return to fiscal prudence, targetting to reduce the deficit to 5.5 per cent of gross domestic product (GDP) in 2010-11 and eventually bring it down to 4.1 per cent in the next two years.

Economists said the windfall from the 3G auction spectrum and disinvestment proceeds will help fiscal consolidation, although fuel and food subsidy bills remain key concerns.

“The government has kicked off gradual fiscal consolidation. However, that effort could still be at risk owing to a high subsidy bill, especially for food and fuel, despite the windfall from the 3G auction,” said Rajeev Malik, head of Economics Research (Asean and India) of Macquarie.

“Even with the upside surprise in the auction proceeds, we remain comfortable with our longstanding forecast for a central government fiscal deficit of 4.5 per cent of GDP in 2010-11... Given recent market volatility, some of the divestments planned by Indian public-sector companies are most likely to be pushed back. This could be a negative offset for government finances,” said Barclays Capital in a recent report.