T-bill cut-offs higher: The 14-day treasury bill was cut off at 9.16 per cent while the 91-day T-bill was cut off at 9.57 per cent (with 9 per cent devolved on PDs). The interest in treasury bills would continue to be dull this week.

Dull trading in gilts: The market expects the government borrowing programme next year to be above Rs 100,000 crore. This apprehension combined with tight liquidity conditions resulted in subdued trading in government securities. Trading is expected to continue on a dull note this week ahead of the unionbudget.

Few options for union budget: The finance minister would be presenting a budget this year under unenviable circumstances. Acceleration of economic performance continues to be elusive.Conventional wisdom dictates a fiscal expansion to spur economic growth; however, this appears an impossible task. Fiscal deficit in 1998-99 is expected to be about Rs 110,000 crore (about 6.8 per cent of GDP). Tax receipts have been much lower than targeted, a fallout of lower than expected economic growth as well as decline in high-tariff imports. The Kar Vivadh Samadhan Scheme is reported to have collected about Rs 2,000 crore this year, significantly lower than the Rs 10,000 crore collected by last fiscal's VDIS. A significant revenue growth in the coming year appears unlikely unless the economy picks up in a sharp manner. The government appears to have started disinvesting PSU shares in right earnest. January and February has witnessed the private placement of Gail shares with banks and financialinstitutions. We may expect a significantly larger target to be raised next year through further sale of shares in PSUs in line with the recommendations of the disinvestment commission. A large portion of the expenditure budget is very inflexible. Of the total expenditure of Rs 268,000 crore in fiscal 1998-99 Rs 75,000 crore was spent on interest payments, over Rs 41,000 crore on defence and about Rs 50,000 crore on salaries. The first item is an obligation that cannot be cut, while reducing expenditure on either salaries or defence is politically a difficult act. This holds true for subsidies too, which accounted for over Rs 22,000 crore. Of the remaining Rs 80,000 crore, Rs 58,000 crore is spent on capital expenditure, the remaining on miscellaneous revenue expenditure.

Are we in an internal debt trap?

A debt trap is defined as a stage where one needs to borrow in order to service the existing debt. That is, non-debt receipts (RE) were Rs 176,902 crore. With actual receipts estimated to be wellbelow the target, we seems to have entered the debt trap.

The only way to exit the trap is to have a sustained period of primary surplus. Primary deficit is the difference between non-debt receipts and non-interest expenditure, this measures the performance in any given year without considering the legacy handed down from previous years. This year, the primary deficit was targeted at Rs 16,025 crore, and we estimate the actual figure to cross Rs 32,000 crore. The economy is expected to continue on a slow note over the slack season, and growth in tax receipts are expected to remain low. Given the inflexible nature of the expenditure side of the budget, the only option for the government seems to be higher disinvestment receipts. This could be the way out at least till the economy shows signs of revival.