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Rediff.com  » Business » Govt to gobble up 3G cash; wants Rs 50,000 cr more

Govt to gobble up 3G cash; wants Rs 50,000 cr more

Last updated on: August 4, 2010 11:16 IST

Govt to gobble up 3G cash; wants Rs 50,000 cr more

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BS Reporter in New Delhi

The government on Tuesday sought parliamentary approval for additional spending of Rs 68,294 crore (Rs 682.94 billion) during the current financial year, of which the cash outgo is estimated at Rs 54,589 crore (Rs 545.89 billion).

The spending will erode the surplus generated through the sale of spectrum and could put pressure on fiscal deficit management.

While moving the first batch of supplementary demand for grants, Finance Minister Pranab Mukherjee told Parliament that the cash outgo -- which is about 5 per cent of this year's budgeted expenditure of Rs 11.09 lakh crore (Rs 11.09 trillion) -- is unlikely to have any adverse impact on the fiscal deficit projected in the budget estimate due to excess receipts under non-tax revenue.

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The Centre has budgeted for a fiscal deficit of 5.5 per cent of the gross domestic product. Since then, it has received Rs 1,06,000 crore (Rs 1,060 billion) from the sale of spectrum for broadband and third generation mobile services against around Rs 35,000 crore (Rs 350 billion) it had budgeted for.

Contrary to earlier expectations, the Centre could end the current year with a fiscal deficit of close to the budgeted level, given that there are two more supplementary demands for grants later in the year.

"Given that the first supplementary is so high, it is a possible that you will end the year with 5.5 per cent fiscal deficit," said HDFC Bank chief economist Abheek Barua.

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Photographs: Reuters
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Like the government, economists are also budgeting for some savings, despite the additional cash outgo.

"You can still contain fiscal deficit within 5.5 per cent of GDP despite the additional spending," said Crisil chief economist D K Joshi. He had earlier estimated that fiscal deficit could be around the 5 per cent mark.

The other positive in the supplementary demand for grants was for oil market companies, which will receive Rs 14,000 crore (Rs 140 billion) as compensation for selling fuel below the market price.

Spend on rural roads under the Pradhan Mantri Gram Sadak Yojana was the other big item on the spending list.

Of the total additional spending of Rs 6,300 crore (Rs 63 billion), for which parliamentary sanction has been sought, around Rs 2,000 crore (Rs 20  billion) is proposed to be spent in districts that have been affected by Left-wing extremists.

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Image: A dancer performs at the rear of the historic Taj Mahal to promote tourism in Agra.
Photographs: Brijesh Singh/Reuters
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Even in case of the police, which is proposed to be given an additional budget of Rs 2,300 crore (Rs 23 billion), around Rs 500 crore (Rs 5 billion) is meant to be spent on recruiting special forces for states affected by Left-wing extremism and for strengthening camp sites of the central paramilitary forces.

The other large beneficiary is Jammu & Kashmir, which is proposed to get an additional Rs 4,300 crore (Rs 43 billion) by way of Special Plan Assistance (Rs 1,779 crore or Rs 17.79 billion) and as Special Central Assistance in its capacity as a special category state.

A part of the additonal spending is also earmarked for creating entitlements.

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For instance, Mukherjee intends to provide Rs 4,000 crore (Rs 40 billion) for implementing the Right To Education.

Also, the supplementary demand for grants has earmarked Rs 669 crore (Rs 6.69 billion) for providing assistance to Bhopal Gas Leak victims.

Joshi said the additional spending will ease the liquidity situation in the markets, which has remained tight for the last few weeks as banks funded payment of the spectrum fee, draining cash from the system.

"It is quite possible that the government is frontloading some of the spending, which is reflecting in the unexpectedly large first supplementary," said Barua.

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Photographs: Reuters
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By sanctioning funds to the oil marketing companies, which will in turn park them in banks, the government will end up injecting liquidity in the system.

If the same funds were allocated for, say rural roads, it would take a longer duration for the funds to come back into the system.

But even before the funds come into the market, banks today parked Rs 2,060 crore (Rs 20.6 billion) surplus cash through the Reserve Bank of India's reverse repo window instead of using the repo route to access funds, as was the case till last Monday.


Image: The India Gate in New Delhi.
Photographs: Reuters
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