The Hindu : Opinion / Editorials : MOVING AHEAD WITH AN OLD IDEA

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Monday, Jan 31, 2005

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MOVING AHEAD WITH AN OLD IDEA

FINANCE MINISTER P. Chidambaram's most recent statement on the public sector disinvestment programme must be understood as an exercise in addressing and resolving policy ambiguities in a contentious area. By spelling out the United Progressive Alliance Government's stand on divesting its stake in both listed and unlisted public sector enterprises that are running profitably, he has sent out a message on the economic reform agenda. In listed as well as unlisted entities, the Government will sell a portion of its stake through the stock market route; this is to be through an independent offer of sale or in conjunction with a public offer by the company. The second method was tried out successfully in the recent National Thermal Power Corporation issue; the Government sold a 5 per cent stake in tandem with an identical public offer from the company. The NTPC offer, the sole big-ticket public sector disinvestment during this financial year, has contributed a very substantial part of the Rs.2,684 crore earned by the Government to date. However, it is unlikely that the modest target of Rs.4,000 crore set by the Union budget can be reached within the next two months. This is because the Government has deferred its decision to sell a 10 per cent stake in Bharat Heavy Electricals, and an 8 per cent stake in Maruti. These two transactions being relatively non-controversial, the Government was expected to see them through before March 31, 2005.

The decision to set up a National Investment Fund (NIF) may be sound in a conceptual sense but as with the broader aspects of the disinvestment programme, it can be evaluated only over time. The UPA regime is actually implementing an old idea. As far back as 1996, the Disinvestment Commission under G.V. Ramakrishna recommended the setting up of a Disinvestment Fund, with objectives strikingly similar to those now proposed. But although the concept was espoused by many a Finance Minister, it was not implemented. From April 1, all disinvestment proceeds will go into the NIF. Its corpus will be managed by professionals to generate superior returns, which will go mainly to fund specific social sector projects and the capital expenditure programmes of select profit-making enterprises. The NIF will remain outside the Consolidated Fund of India. The Government has claimed it will end the undesirable practice of disinvestment proceeds being used to meet budgetary deficits. That is going to be a tall order given the experience of India and other countries. The governments of most countries have given in to fiscal compulsions and appropriated sale proceeds meant for other purposes to meet their revenue expenditures. In the recent past, disinvestment proceeds have been critical in bridging budgetary gaps in India. The UPA Government has ambitious plans for the social sector. It is not clear where the additional money will come from if the disinvestment proceeds are kept out of the budget. But the time has certainly arrived to put NIF money where the Government's mouth is and also find innovative and hard-nosed ways of funding the budget.

The question gains urgency especially because the UPA Government has shut the door on the strategic sale route to disinvestment. Besides, the proviso that the Government will retain control with a minimum 51 per cent stake in all public sector enterprises might translate into fewer large-sized stock market offerings. Ideally, the NIF should be flush with funds. For all its limitations and deficiencies, it is the actualisation of an idea that responds to ideological and political opposition to this component of economic liberalisation.

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