News Release Details
Fiscal transparency
New Delhi 03-Aug-2007
As the government refuses to let petroleum product prices find their own level in the market, and election clouds appear on the horizon, the choices available to the petroleum and finance ministries have shrunk to zero. The deficit in the oil pool account has ballooned to about Rs 19,000 crore. This, just to absorb about one-third of the impact, of the surge in international oil prices whilst state-run firms continued to sell fuel below cost. Subsidies are an expensive business, getting dearer by the day.Old options like snipping customs and excise duties have ruti out.’ If Indian motorists are to be spared a filling station shock the only way out is to either dip into the Union Budget or defer. The liability to the future. The latter alternative was used in 2005-06, and again in 2006-07, through the issuance of oil bonds worth a hefty Rs 35,621 crore. These bonds will come up for redemption at some point, and the government should hope that India's fiscal conditions are orderly enough to pay up without causing much pain. The piquant part, however, is that these bonds were issued when international oil prices were nowhere near the levels they now are—$78 per barrel. With price-decline expectations now scraping the bottom, getting further into indebtedness makes no sense whatsoever. That is why the government's reported move to consider the last option, of taking the oil pool deficit onto the Budget proper as suggested by the Rangarajan Committee, is to be lauded. Playing ducks and drakes with the true extent of the country's fiscal balance was always an idea whose time had long past. But what does this imply to the targets under the Fiscal Responsibility and Budget Management Act (FRBMA) Thanks to buoyant revenues, the finance ministry has been a picture of fiscal confidence. Next year, the terminal FRBM year, the government has set itself up for a massive cut in fiscal and revenue deficits. By taking on the oil pool burden, the challenge will become stiffer. But then, as India's debt market moves towards better integration with world markets, the new transparency on the real shape of public finances will be rewarded in terms of finer spreads for government bonds over their best-rated international counterparts. That means a lower rate of interest on Indian government debt.
New Delhi 03-Aug-2007
As the government refuses to let petroleum product prices find their own level in the market, and election clouds appear on the horizon, the choices available to the petroleum and finance ministries have shrunk to zero. The deficit in the oil pool account has ballooned to about Rs 19,000 crore. This, just to absorb about one-third of the impact, of the surge in international oil prices whilst state-run firms continued to sell fuel below cost. Subsidies are an expensive business, getting dearer by the day.Old options like snipping customs and excise duties have ruti out.’ If Indian motorists are to be spared a filling station shock the only way out is to either dip into the Union Budget or defer. The liability to the future. The latter alternative was used in 2005-06, and again in 2006-07, through the issuance of oil bonds worth a hefty Rs 35,621 crore. These bonds will come up for redemption at some point, and the government should hope that India's fiscal conditions are orderly enough to pay up without causing much pain. The piquant part, however, is that these bonds were issued when international oil prices were nowhere near the levels they now are—$78 per barrel. With price-decline expectations now scraping the bottom, getting further into indebtedness makes no sense whatsoever. That is why the government's reported move to consider the last option, of taking the oil pool deficit onto the Budget proper as suggested by the Rangarajan Committee, is to be lauded. Playing ducks and drakes with the true extent of the country's fiscal balance was always an idea whose time had long past. But what does this imply to the targets under the Fiscal Responsibility and Budget Management Act (FRBMA) Thanks to buoyant revenues, the finance ministry has been a picture of fiscal confidence. Next year, the terminal FRBM year, the government has set itself up for a massive cut in fiscal and revenue deficits. By taking on the oil pool burden, the challenge will become stiffer. But then, as India's debt market moves towards better integration with world markets, the new transparency on the real shape of public finances will be rewarded in terms of finer spreads for government bonds over their best-rated international counterparts. That means a lower rate of interest on Indian government debt.