Unfortunately, however, all the centre seems to be interested is in its own fiscal deficit. While the small-savings deposits are classified under the centre's borrowings, the funds have to be shared with the states. If the amount of small savings come down, and instead the centre borrows on its own account, these borrowings will not have to be shared with the states.

But this is a very short-sighted view. So far as the fiscal deficit is concerned, what matters is not merely the centre's deficit, but the combined deficit of the centre and the states. If, as a result of the lowering of interest rates on postal schemes, the accretion to small savings schemes slows down, the states will then have to garner resources by direct borrowing, which means that there will be no effect on the combined deficit.

The lower rates are unlikely to have much of an impact on stemming the accretion to the post-office schemes, because the rates are still attractive compared to those of bank deposits, especially when the bonus and tax exemptions for some of the schemes are taken into account. What could make an impact is when market interest rates start moving upwards. That would lower the comparative attraction of the post-office rates, causing funds to move most probably into bank deposits.

If the post-office rates are aligned with those prevailing in the market, it will remove the complaint of bankers that these rates practically constitute a benchmark, since banks can hardly be expected to go much below these rates without a flight of deposits to the post office. One impediment to lower real interest rates will also have been removed.

Power and Section 10(23G): MSEB's Rs 350-crore bond issue for strengthening its distribution system will not get the benefit of Section 10 (23G) of the Income-Tax Act. Section 10(23G) provides that any income by way of dividends other than dividends referred to in Section 115-O, interest or long-term capital gains of an infrastructure capital fund or an infrastructure capital company from investment made on or after April 1, 1998, is exempt from tax. Had the benefit been granted to bonds issued by MSEB, the coupon would have been lower.

The condition to be satisfied for availing itself of the benefit is that the enterprise raising funds should be engaged wholly in the developement, maintenance and operation of an infrastructural facility. For a utility, the generation of power should start on or after April 1, 1993. A problem that all SEBs will face is that transimission of power is not classified as infrastructure and neither is stand-alone distribution. This will create problems for SEBs, who will be hard pressed to invest the required funds in transmission and distribution. The problem with SEBs is that all of them are engaged in generation, transmission and distribution of power, and hence cannot be referred to as wholly engaged in infrastructural facility. The result is that the benefit of Section 10(23G) is not available. Private players in power too will not be able to avail themselves of the sections' benefit.

Investment in T&D is more desperately required than setting up additional generation facility. The section will have to be amended if the intention is to provide benefit to transmission and distribution. At least an exception for SEBs will have to be made not only because very few SEBs will follow the example of the Gujarat Electricity Board and concentrate only on generation, but also because where does one draw the line for transmission and distribution? Take the example of bulk (high tension) consumers. Is the power supplied by a utility, transmission or distribution? Is TEC, for example, a generation and distribution company or generation and transmission company? Unless amended, the section, at least for the power sector, defeats its very purpose.

Road cess: The finance ministry has done it again. It started with cess collected from oil exploration and producing companies. Then a special import duty was imposed to fund infrastructure. Last year, it was a petrol cess which was charged for development and maintainance of highways in the country. None of this cess collected by the finance ministry has been put to use for the purpose it was meant. Now the government is contemplating charging a cess of Re 1 per litre on diesel for the prime minister's ambitious road-development programme. It is anybody's guess where the funds will be diverted.

The finance ministry has recently disallowed earmarking of Rs 790 crore meant for development of highways as the actual expenditure incurred by the National Highway Authority of India (NHAI) was only Rs 110 crore. These are two completely different issues. Just because the NHAI has been slow in utilising the funds, it does not mean that the finance ministry takes credit for the cess in its own account. The whole issue highlights the desperate situation the finance minsiter is in to bridge his deficit.

With contributions from Urmik Chhaya and Shishir Asthana