Muted response to spectrum sale may threaten deficit reduction plans
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The muted response to the 2G auction could pose a fresh threat to the government's new fiscal deficit target of 5.3 per cent of the GDP in 2012-13. Revenue from spectrum auction along with proceeds from disinvestment were expected to help finance minister P Chidambaram better the fiscal math and prevent a downgrade by rating agencies.
Telecom firms put in bids of Rs 9,407 crore in the two-day exercise that ended on Wednesday, much below the Budget estimate of Rs 40,000 crore or even the revised expectation of Rs 30,000 crore and economists believe this will make the Centre's task to follow its revamped fiscal consolidation plan even tougher.
"The poor response to 2G spectrum auction will make the fiscal deficit target of 5.3 per cent even more difficult to achieve. Expenditure management will be crucial for the government from now on, even though the initial signs are not very encouraging," said DK Joshi, senior director and chief economist at Crisil.
Chidambaram had on September 21 unveiled a revamped fiscal consolidation plan to lower fiscal deficit to 5.3 per cent this fiscal, banking heavily on a cut in plan and non-plan spending, raising the targeted receipts from disinvestment and spectrum auction and implementing some suggestions of the Vijay Kelkar committee report on government finances.
"There is time until March, so we will have to wait and see what the exact deficit numbers are. The fiscal consolidation plan depends on the government going slow on some expenditure. There will be a slight cushion on the oil subsidy as global crude prices have eased below $109 a barrel," said M Govinda Rao, director of National Institute of Public Finance and Policy and a member of the PMEAC, who had earlier predicted that the fiscal deficit would be about 5.5 per cent in 2012-13.
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