Govt may miss revenue, disinvestment targets in FY11-12: RBI

With the first half of the fiscal year already over and the government only able to mop up Rs1,143 crore through disinvestment in one company, there are apprehensions that the budgeted target of Rs40,000 crore would be missed

Mumbai: The government is likely to miss the targets for revenue collection and disinvestment for the current fiscal, pushing up the fiscal deficit budgeted at 4.6% of the gross domestic product (GDP), reports PTI quoting the Reserve Bank of India (RBI).

In its mid-year economic review, the RBI said growth in 2011-12 is likely to moderate below 8% —its earlier projection. “Given growth outlook, there is a risk of not meeting tax collection target,” RBI said.

The government has set a tax collection target of over Rs7 lakh crore for the current fiscal. However, with slowdown in economic activities, the growth rate is likely to decline below 8%, which will lower its revenue collection.

The RBI also said the government could miss the Rs40,000 crore disinvestment target, putting further pressure on the government finances.

“There is a possibility of the central government missing its disinvestment target, which would add to the pressures of achieving the budgeted fiscal deficit for 2011-12,” RBI said.

The government had projected that the fiscal deficit for the current fiscal would be 4.6% (Rs4.12 lakh crore).

The government was able to bring down the fiscal deficit to 4.7% in 2010-11 from 6.6% last fiscal, mainly on account of inflows from third generation (3G) spectrum and broadband auctions.

“Current indications are that the central government's deficit targets for 2011-12 will be breached,” RBI said.

With the first half of the fiscal year already over and the government only able to mop up Rs1,143 crore through disinvestment in one company, there are apprehensions that the budgeted target of Rs40,000 crore would be missed.

“The fiscal position during the course of the year will be shaped by the eventual growth outcome and its impact on tax revenues as well as the government’s commitment towards controlling expenditure,” the RBI said.

It said with oil prices remaining at elevated levels, the subsidy burden of the government is expected to be much higher than budgeted. The subsidy on petroleum products, including LPG, kerosene and domestic cooking gas, for the current fiscal is budgeted at Rs23,640 crore. “Hence, the process of fiscal consolidation is likely to suffer a setback.”


RBI hints at another rate hike to tame inflation

“Inflation risk...persists. The policy choices have become more complex. In this backdrop, the monetary policy trajectory will need to be guided by the emerging growth-inflation dynamics even as transmission of the past actions is still unfolding,” RBI said in its review released on the eve of mid-year monetary policy announcement

Mumbai: With inflation remaining high, the Reserve Bank of India (RBI) today indicated that it may go for another round of interest rate hike tomorrow even though the step may impact the economic growth, reports PTI.

“Inflation risk...persists. The policy choices have become more complex. In this backdrop, the monetary policy trajectory will need to be guided by the emerging growth-inflation dynamics even as transmission of the past actions is still unfolding,” RBI said in its review released on the eve of mid-year monetary policy announcement tomorrow.

Though the risk to growth is becoming visible, the challenge of bringing down inflation to an acceptable level on a sustainable basis remains significant, it further said.

On account of various global and domestic factors, the RBI said, “Growth in 2011-12 is likely to moderate slightly from that projected earlier.”

The RBI had projected the economic growth, or gross domestic product (GDP) expansion, for the current fiscal at 8%, down from 8.5% in 2010-11.

The RBI has raised interest rates by 350 basis points since March 2010 in its bid to contain inflation, which has remained near double-digit.

The rate of price rise was 9.72% in September, while food inflation was 10.60% for the week ended 8th October.

The RBI said the investment demand is softening as a result of tightening of the monetary policy, deteriorating business confidence and project executions facing hindrances among other things.

While growth in the current fiscal is likely to moderate to below trend, agriculture prospects remain encouraging with the likelihood of a record kharif crop.

“However, moderation is visible in industrial activity and some services,” the central bank said.

The country’s industrial output as measured on Index of Industrial Production (IIP) grew by a dismal 4.1% in August (latest data) as high interest rates and gloomy global indicators weighed against the factory output.

In addition to domestic factors, the RBI said global factors may slow down growth.

“With the increasing linkage of domestic industrial growth with global industrial cycle, some further moderation is likely ahead...”

It said capacity constraints seem to be easing in some manufacturing segments, especially cement, fertilisers and steel. Besides, construction activity has slowed and leading indicators suggest that going forward, “services growth may slightly weaken”.

According to the RBI, the planned corporate fixed investment in new projects declined significantly since the second half of 2010-11 and has stayed low in the April-June period of 2011-12.

“Consequently, the pipeline of investment is likely to shrink, putting growth in 2012-13 at risk,” it said.

The central bank said high inflation is likely to persist in the next couple of months before moderating as falling global commodity prices so far has been offset by rupee depreciation.

“Incomplete pass-through is likely to limit the impact of falling global commodity prices. Financialisation of commodities leaves future commodity price path uncertain,” it added.

The RBI’s macro-economic review said that domestic price pressures still remain significant and broad-based.

“Food inflation is likely to stay elevated due to demand-supply mismatches in non-cereals and large MSP revisions,” it said adding real wage inflation has extended into first quarter of the fiscal.

“In sum, the inflation challenge remains significant,” it said.

Besides, private consumption is also starting to soften in parts, but it remains robust overall as is evident from corporate sales performance. Sales growth continues to be healthy, but profits are under pressure, the RBI said.

Fiscal slippages during 2011-12 may complicate the task of aggregate demand management.

“Key to growth sustainability lies in supporting investment by rebalancing demand from government consumption to public and private investment,” it said.

On financial markets, it said volatility was high in global markets in second quarter of 2011-12 and rising risk aversion caused credit spreads to widen.

“Volatility spill-overs impacted domestic currency and equity markets in a limited way,” the RBI said.

On the current account deficit (CAD), which widened in first quarter of the fiscal, despite a surge in exports and higher net invisibles receipts, the RBI said “invisible earnings may also decelerate as slowdown in US and euro area could impact software exports”.

Going forward, the merchandise could also decelerate as global growth slows down, it said.

On rupee depreciation and the fall in equity indices in July-September quarter, RBI said they were comparable to the patterns in most other emerging markets.

Money market rates remained in line with policy signals, while G-sec yields hardened after the announcement of additional market borrowing.


Share prices still in no-man’s land: Monday Closing Report

The Nifty may move in the range of 4,990 and 5,160

In Friday’s closing report, we had mentioned that the Nifty is in a directionless state. The support lies at 4,975, while the upside resistance is at 5,160. Today, the Nifty tried crossing this resistance, but failed. After opening strongly in the positive, both the Sensex and the Nifty hit their intraday highs in the morning session itself. They fell in the post-noon session as fears over a possible RBI (Reserve Bank of India) rate hike fear made the rounds. However, the indices ended in the positive. Still in no-man’s land, the index may move in the range of 4,990 and 5,160. The National Stock Exchange (NSE) gained on a low volume of 47.90 crore shares.

The market opened firm on supportive global cues as markets in Asia were trading higher in morning trade. The Nifty started the day at 5,115; up 65 points and the Sensex surged 225 points to open trade at 17,011. Metals, realty, IT and banking stocks supported early gains.

Trading sideways after a positive opening, the Sensex hit its intraday high of 17,105 in the first half-hour itself while the Nifty touched its day’s high around 11.10am as the index touched 5,146.

The uptrend lost its momentum after the indices touched the day’s highs and began drifting marginally lower as trade progressed, and nervousness set in ahead of the RBI quarterly policy review tomorrow. Analysts opine that the central bank may hike interest rates by 25 basis points (bps) before taking a pause.

The benchmarks fell to their day’s lows in late trade with the Nifty going down to 5,085 and the Sensex retracing itself below the 17,000 mark to 16,899. However, the market closed a tad above those levels. At close, the Nifty advanced 48 points to 5,098 and the Sensex gained 154 points to settle at 6,939.

The advance-decline ratio on the NSE was in favour of the losers at 718:928.

The broader indices settled flat with a negative bias with the BSE Mid-cap index slipping 0.04% and the BSE Small-cap index shedding 0.05%.

In the sectoral space, BSE Power (up 0.57%) and BSE Auto (up 0.01%) were the lone gainers. BSE Bankex (down 0.03%), BSE Capital Goods and BSE Fast Moving Consumer Goods (down 0.02% each) were the noteworthy losers.

Tata Motors (up 4.44%), ONGC (up 4.09%), Hindustan Unilever (up 3.14%), Bajaj Auto (up 3.12%) and TCS (up 2.97%) were the top gainers on the Sensex. The laggards were led by Larsen & Toubro (down 3.11%), State Bank of India (down 2.11%), Coal India (down 1.28%), Sun Pharma (down 0.99%) and HDFC Bank (down 0.45%).

The top movers on the Nifty were Tata Motors (up 4.91%), ONGC (up 3.96%), Reliance Power (up 3.69%), HUL (up 3.50%) and Axis Bank (up 3.31%). The major losers on the index were L&T (down 2.94%), Punjab National Bank (down 1.96%), SBI (down 1.91%), Sun Pharma (down 1.82%) and Coal India (down 1.38%).

Markets in Asia settled with decent gains following a report suggesting that China’s manufacturing output is expected to surge in October, snapping a three-month contraction. The HSBC China Flash PMI reading for October boosted markets in Hong Kong and mainland China. Japanese exports rose 2.4% in September from a year earlier, a sign of an improving economy despite the global slowdown. Signs of progress towards a plan to limit the euro-zone debt crisis also supported investor sentiment.

The Shanghai Composite gained 2.29%; the Hang Seng jumped 4.14%; the Jakarta Composite rose 2.38%; the KLSE Composite advanced 0.78%; the Nikkei 225 rose 1.90%; the Straits Times was up 1.79%; the Seoul Composite surged 3.26% and the Taiwan Weighted settled 2.97% higher.

Back home, foreign institutional investors were net sellers of stocks worth Rs234.01 crore on Friday while domestic institutional investors were net buyers of shares worth Rs73.36 crore on the same day.  

  Public sector lender IDBI Bank plans to raise around $200 million from the Switzerland market under its medium-term foreign debt raising programme. IDBI Bank, which has a $1.5-billion MTN programme, has already raised around $400 million in the first part of this calendar year. The stock settled unchanged at Rs103 on the NSE.

Oriental Bank of Commerce (OBC) and SBI Cards have launched co-branded credit card for the former’s customers. The strategic tie-up with SBI Card gives OBC the perfect platform to extend the relationships with its customers with credit offerings that are unmatched in convenience and flexibility. OBC tumbled 5.13% to settle at Rs281 on the NSE.

Shriram Transport Finance Company’s subsidiary Shriram Automall has drawn up plans to invest Rs1,000 crore for opening 50 automalls by 2013. These automalls will facilitate truckers to replace their vehicles without any delay as it will provide unique platform for the second-hand trucks market. Shriram Transport Finance tanked 4.21% to close at Rs580.50 on the NSE.


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