Budget 2012: Pranab's non-taxing option

Will Finance Minister Pranab Mukherjee take shelter in non-tax revenues to hold the budget deficit at a respectable level?  Why not, if that means pleasing the aam aadmi, corporate billionaires and nagging economists. Look at Mukherjee's dilemma: he cannot hike direct or indirect taxes beyond a certain point.

If he does that would hurt consumption and consequently derail any chances of recovery in the economy.  Similarly, he doesn't have the luxury of reducing subsidies in a big way or even tinkering with government's inclusive agenda of uplifting the bottom of the pyramid. Such an act would be politically suicidal for the Congress-led UPA government which is losing people's confidence by the day.

So caught between the devil and the deep sea, the only safe option looks to be pumping up non-tax revenues through aggressive PSU disinvestment and one-off items like auctioning of cancelled 2G licenses and also 4G licenses, and amnesty scheme for channelising black money for productive purposes etc.

Over the decade, the non-tax revenues in the union budget have contributed anywhere between 15 to 30 per cent of total revenues. This share has actually gone down from 31 per cent in 2002-03 to a Budgeted 16 per cent in 2011-12 especially because of delay in privatisation of PSUs. The bread and butter stable source of non-tax revenues are interest on loans from state government, dividends and interest from RBI, PSUs, banks, etc.

Experts say even in these stable sources, the finance minister has enough headroom to increase the revenue contribution by demanding a higher share of dividends from public enterprises. For example, ONGC is the largest PSU in terms of profitability with profit after tax of close to Rs 20,000 crore in 2010-11. The dividend payout can easily go up from the existing 350 per cent.

There is also the possibility of finance minister pleading with PSUs to dole out higher dividend payouts in view of the slowdown in the economy and the deteriorating finances of the government. The disinvestment of PSUs is yet another window for raising higher resources. Past finance ministers have actually failed to make good use of the disinvestment window.

In the current fiscal 2011-12, the government has struggled to raise around Rs 14,000 crore through Power Finance Corporation and ONGC as against a targeted Rs 40,000 crore. A year before, the finance minister mobilised  Rs 22,700 crore by selling stake in half a dozen PSUs like Power Grid Corporation, Coal India, Shipping Corpopration etc against the targeted Rs 40,000 crore.

Mukherjee could utilise this pipeline more aggressively in 2012-13.  Take for example the three large PSU disinvestment candidates where government holds anywhere between  80-100 per cent  - Hindustan Copper, SAIL  and Oil India - all are valued at over Rs 1,00,000 crore.  If they divest 20 per cent, these three entities alone could garner a minimum of Rs 20,000 crore provided the stock market also remains buoyant. The auctioning of telecom licenses is yet another opportunity to explore to raise higher non tax revenues.

The icing on the cake would be an amnesty scheme to channel back black money for productive purposes. Home minister  P Chidambaram, who was the finance minister in the United Front regime in late 90s, came out with a voluntary disclosure scheme in 1997 which coughed up nearly Rs 10,000 crore those days.  An amnesty scheme could be a joker in the pack for finance minister, if he takes a call to launch it in the budget or during the year, though there will be political repercussions.

There is no dearth of options, but what is required is a will to do it. And if Mukherjee succeeds in raising higher non-tax revenues, this will actually save the day for him and also lift the sagging fortunes of the UPA Government.

Still, some experts warn that any heavy reliance on non tax revenues - especially one-off items - is not a good long-term solution for country's fiscal consolidation drive. In order to attract foreign investors and promote private investments, the country needs more a credible solution to close the growing fiscal deficit. The stock solution lies in taming unnecessary subsidies and widening the tax base. And Mukherjee would surely say; save that for another day.