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Friday 21 October 2011

Disinvestment: Fiscally challenged, govt chalks new selloff plan

20 OCT, 2011, 12.26AM IST, ET BUREAU

Disinvestment: Fiscally challenged, govt chalks new selloff plan

HDFC Bank Ltd.
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NEW DELHI: The government will be hard pressed to meet its fiscal deficit goal, Pranab Mukherjee said on Wednesday, as the finance ministry tries a new tack to achieve another key target that could prove elusive - disinvestment.

Mukherjee's statement at a conference of economic editors on Wednesday is the first official admission that the fiscal deficit goal of 4.6% of the GDP for the year ending March 2012 may be too ambitious.

"With crude (oil) prices remaining where they are, it will be a great challenge to maintain the fiscal deficit numbers at 4.6% this year. However, we will make strenuous attempts to keep fiscal deficit at around these numbers," he said.

Projections by the government in recent months have gone consistently awry as India feels the impact of a global economic slowdown and volatile commodity prices. Inflation, a bugbear for any ruling party, has defied government expectations and remained uncomfortably high over many months. While economic expansion stalls, the government has been beset by a series of corruption scandals, leading to accusations that it has lost its nerve, leaving policymaking in a limbo.

With stock markets in a sour mood, the government is huffing and puffing to meet the disinvestment target of Rs 40,000 crore. With only Rs 1,145 crore in its kitty so far from disinvestment, the government is considering open auctions of small portions of the stock it owns in state-run companies instead of share sales through public offers, a finance ministry official said.

But the disinvestment policy does not allow such a method and so the ministry could soon ask the cabinet to approve the new approach, the official said. If the fiscal deficit goal is not met, it may imply that the government will even exceed the revised target for borrowing in the second half of the fiscal year. Earlier this month, the government said it would borrow Rs 52,800 crore more than budgeted in the latter half, but maintained this was only to meet the shortfall in small savings and fiscal deficit would not be affected.

But the financial markets have not been buying the government's fiscal deficit promises. "The bond market is already factoring in a fiscal deficit of up to 5.3%. If the government overshoots the borrowing programme further than what it has already announced, the bond market may take it negatively," said Arvind Konar, headfixed income, Almondz Global Securities.

Deutsche Bank said on October 7 that a likely shortfall in the disinvestment target, lower tax collection and higher fuel subsidies could leave fiscal deficit at around 5.4%.

Disappointing Growth

Abheek Barua, chief economist at HDFC Bank, said the government will struggle to borrow the extra money because the "market doesn't have any appetite". The first two government bond auctions have already devolved on primary dealers because of fears that shortfall in revenues may force even more borrowings at higher yields.

The yield on the 10-year benchmark paper has already firmed up to 8.8% from about 7.9% at the beginning of the year. In February, when Mukherjee presented the budget and forecast that India would grow by 9% in the fiscal to March 2012, that projection was greeted with much scepticism. Most economists have now downgraded the growth outlook to around 7%.
Black money: Pranab Mukherjee says 9,900 Indian overseas accounts under probe!The global financial turbulence has taken its toll on Indian bourses with FIIs selling more than $2.2 billion worth of Indian shares between August and September.As a result, the government may put off share sales, including that of SAIL and Hindustan Copper, said officials. This may make the target of raising Rs 40,000 crore from divestment “tougher.”

Finance minister Pranab Mukherjee on Wednesday said the government had received information from France about Rs 400 crore unaccounted money in as many as 69 overseas accounts of Indians and had recovered Rs 30 crore in taxes from them.

FM Pranab Mukherjeesaid inflation had remained “sticky at around 9 per cent” during the first half of this fiscal mainly because of rising commodity prices, including high crude prices, as also global liquidity created by central banks in the US and elsewhere in the West, where they printed money to finance huge public debt.

India received some $23.5 billion of net capital inflows in the first five months of this fiscal against $16.8 billion during the same time last year. Much of the RBI’s money sapping moves have been undertaken to sap up this floating liquidity.

The RBI’s tough stance has been at variance with many other central banks which have put a brake on rate hikes to help industry. However, Mukherjee made it clear India might not go by other central banks’ prescriptions.

Briefing economic editors, the FM said with the help of Double Taxation Avoidance Agreement(DTAA) with France, India was able to extract some information regarding Indians having bank accounts.

He said the government's efforts on black money were paying results. So far, specific requests in 333 cases were made by authorities for obtaining information from foreign jurisdictions. Both the Income Tax department and Financial Intelligence Unit are pursuing these cases.

"Over 9,900 pieces of information regarding suspicious transactions by Indian citizens from several countries have been obtained which are now under different stages of processing and investigation," he added. Besides, more than 30,700 suspicious domestic transactions are under investigation by different agencies.

The Income Tax department has detected mispricing of Rs 34,000 crore in the last two years, preventing the outflow of this amount to foreign jurisdictions. In addition, I-T investigation wings detected concealed income of Rs 18,750 crore during this period. In the first five months of the current financial year, concealed income of Rs 3,014 crore was detected as a result of searches.

Mukherjee said India was engaged with Mauritius to update the existing Double Taxation Avoidance Convention (DTAC) in line with international practices that would help in curbing treaty shopping by corporates here. The government's recent initiative with Switzerland to obtain information on tax evaders was likely to improve the inflow of banking information substantially, the FM said.

AMETHI: The Aadhaar scheme, which aims to provide each citizen with a 12-digit unique number, has been launched to ensure that the funds allocated by the Centre for various schemes directly reach the beneficiaries, Congress general secretary Rahul Gandhi said today.

"Rajiv Gandhiji had once said that of Re 1 released by the government, only 15 paise reaches the people. Situation is same today," Rahul said at a function here.

The local MP rued that crores of rupees were being released under various schemes including NREGA and Sarv Shiksha Abhiyan, but it's not reaching the people. "It is not about UP alone, situation is same across the country."

He said an effort has been made to change the situation by launching Aadhaar scheme.

"Under the scheme, thumb impression of people are being taken and a number is being allotted to each of them. This number will be their identity. An unique identity is being created for each Indian," he explained while inaugurating a branch of Corporation Bank here.

The banking services have been linked with the aadhaar card and there would be one identity number and bank account, he said.

"After this, whatever money we will send from Delhi will directly reach your bank accounts. It is an attempt to fix this 15 paise problem," he said, adding the aadhaar card will also address the discrepancies in BPL list.

"In next two to three years, we will distribute aadhaar cards to all Indians so that whatever money is allocated it reaches directly to the pocket of the people," he said.

He said that country cannot progress unless banking services reach poor, farmers and labourers.

Earlier, Rahul visited the house of Ajay Gupta, who was killed with his wife and two others on October 13, and met his mother.

Gupta's mother handed him over a memorandum demanding a CBI inquiry into the matter, party sources said.

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