The Government’s plans for disinvestment need to be front-loaded to take advantage of supportive market conditions, and to forestall cutbacks in capital expenditure to meet deficit targets, the Reserve Bank has said.

In its Annual Report (2014-15), the RBI observed that cutbacks in capital expenditure compromise the quality of fiscal consolidation.

It said the projected increase of about 179 per cent in disinvestment receipts, despite a track record to the contrary in terms of actual realisation, poses possible risks to overall budgetary targets for 2015-16.

According to the Union Budget, the government is expecting to rake in ₹69,500 crore in the form of miscellaneous capital receipts (₹41,000 crore via disinvestment receipts and ₹28,500 crore via strategic disinvestment) in 2015-16.

This includes both disinvestment in loss-making units, and some strategic disinvestment.

In the financial year so far, the government managed to sell minority stakes in three public sector companies — Power Finance Corporation, Rural Electrification Corporation and Dredging Corporation — to raise over ₹3,300 crore.

Add to this, the 10 per cent offer for sale in Indian Oil Corporation mopping up around ₹9,380 crore, taking the total earnings from disinvestment in 2015-16 so far to around ₹12,600 crore.

In 2014-15, the government managed to mop-up only about half of the budgeted disinvestment target of ₹63,425 crore.

Overall, the Government’s plan for fiscal consolidation in 2015-16 through re-orientation of public expenditure in favour of investment rather than subsidies is a welcome move towards improving the quality of fiscal adjustment, the RBI said.

Towards achieving this, the report said that it will be important to realise the budgeted revenue on the one hand and adhere to the budgeted expenditure on subsidies on the other.

The RBI suggested that through direct benefit transfers, the government may economise on food subsidy expenditure by eliminating costs associated with procuring, distributing and storing food grains. For 2015-16, the Government has budgeted for fiscal deficit of 3.9 per cent as against 4 per cent ( according to provisional accounts) in 2014-15.

The Union Budget 2015-16 was formulated with the two-fold objective of promoting growth through stepping up investment and strengthening the federal structure.

Fiscal strategy

Accordingly, the fiscal strategy during 2015-16 is focussed on creating space for infrastructure spending through a mix of own resources as well as a sharp increase in investments by central public sector enterprises and a substantial increase in resource transfer to the States.

While the increased devolution to the States will constrain the central government’s finances, the RBI said it will help the States design, implement and finance programmes according to their specific needs.