DIRECT TAXES
| India Inc to gain as cash-rich govt may borrow less in second half Tue, 21 Sep 2010 22:37:55 GMT |
| The Economic Times India Inc to gain as cash-rich govt may borrow less in second half NEW DELHI: A stronger-than-budgeted growth in revenues could see the government borrow less from the market in the second half of the fiscal, leaving more funds for private borrowers amid rising signs of a pickup in investment activity. The finance ministry and the central bank officials will meet on September 23 to decide on the borrowings calendar for the second half. The buoyancy in indirect and direct tax revenue suggests that we will exceed the target for the year, said a finance ministry official, adding that the Rs 40,000-crore disinvestment is likely to be met. The bulk of the Rs 65,000-crore windfall from the auction of 3G and broadband spectrum has already been consumed by the extra expenditure proposed by the government. The government is, therefore, likely to use the extra revenue to pare down the fiscal deficit, budgeted at 5.5% of GDP. “The government has got additional revenues so it may borrow less,” said D K Joshi, Chief Economist, Crisil. The government has already completed Rs 2.63 lakh crore of the total borrowing of Rs 4.57 lakh crore for the fiscal. If the government decides to borrow less, it will leave more funds for private hands just when investments look to be picking up, as evident from increase in production and import of capital goods. Year-on-year credit growth was up 19% but part of it because of the funding of the 3G. Lower borrowings from the government will also help reduce pressure on interest rates as the Reserve Bank of India tightens monetary policy. The yield on ten-year benchmark paper has inched up after the central bank has lifted rates five times this year by a total of 1.25 percentage points. “If borrowings are lower due to higher revenue collection, then the bond yield will decline in the short term,” said Alex Mathew, research head, Geojit BNP Paribas. Indirect taxes, including import duties, excise duty and service tax, collections have grown by over 46% in the April-August and look all set to cross the budgeted Rs 3.15 lakh crore. Though direct tax collections have grown by about 15% in April-August, a tad higher than the required about 14%, but with growth expected to pick up in the third quarter finance ministry officials expect to be well within reach of the budget target and could even exceed it marginally. With a mega Coal India initial public offer, a big ticket stake sale in blue chip oil public sector units such as ONGC and Indian Oil Corporation and a follow on public offer of SAIL, government’s disinvestment proceeds are on track to achieve the budget estimate of Rs 40,000 crore. The airwave auction that brought Rs 1,00,000 crore into the government kitty much more than the anticipated Rs 35,000 crore also provides enough comfort. Though, the expenditure demands have eaten into a substantial part of this money the government still has some buffer here. The policy bias within the finance ministry is also in favour of retraining the growth in expenditure so there could be some tightening of purse strings over the next six months as the government begins its budget exercise. “..there is a need to contain growth in expenditure so as to achieve a lower than budgeted level of fiscal deficit that could send appropriate market signals to investors, which is critical in sustaining growth in the medium term,” said recently released monthly economic report by the finance ministry. |
Online Poll