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This article was first published 8 years ago  » Business » Divestment remains a forgotten promise

Divestment remains a forgotten promise

September 07, 2015 09:19 IST
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Post the Budget, the idea of strategic disinvestment seems to have been dropped by the government, notes A K Bhattacharya.

Public memory is short. What was promised in Parliament six months ago is likely to be forgotten. This is precisely what seems to have happened with strategic disinvestment, which is also known as privatisation.

Nobody in the government these days seems to be talking about strategic disinvestment.

But take a look at the 2015-16 Budget documents tabled in Parliament on February 28 earlier this year.

You would see a significant entry under the government's capital receipts that refers to proceeds of Rs 28,500 crore (Rs 285 billion) from strategic disinvestment.

This amount is a subset of the government's total disinvestment target of Rs 69,500 crore (Rs 695 billion) in the current year.

In other words, the remaining Rs 41,000 crore (Rs 410 billion) is expected to come from sale of small chunks of government equity in public sector units.

The difference is that while Rs 41,000 crore would come from equity sales that do not dilute the government's stake below 51 per cent, the remaining Rs 28,500 crore would come from equity sales that would result in the government becoming a minority shareholder - or in other words, privatisation.

Note that unlike in the past couple of years, the Budget for 2015-16 kept no provision for sale of residual government equity in companies that had been privatised in the past.

In 2013-14, Rs 6,108 crore (Rs 61.08 billion) was realised through sale of government equity in non-government or privatised companies.

The government had hoped to mobilise Rs 15,000 crore (Rs 150 billion) in 2014-15 from the sale of such residual stake in privatised companies, but ended the year without any such transactions.

Now, the government has so far this year divested its stake in small instalments in different public sector undertakings, mobilising over Rs 12,000 crore (Rs 120 billion).

The bulk of this amount has come from a 10 per cent equity sale in state-controlled Indian Oil Corporation fetching the government over Rs 9,000 crore (Rs 90 billion).

This in itself is a creditable record, compared with what the government managed in the first half of last year, although questions over the quality of disinvestment would be raised as the bulk of the shares were purchased by state-owned Life Insurance Corporation of India.

The full year's disinvestment target may still be met, provided the pace of disinvestment picks up in the second half of the year.

Some doubts still persist as the stock market is seeing a downturn and volatility is at a record high.

But that is not a big fiscal concern, particularly because the government may not be critically dependent on disinvestment proceeds to meet its fiscal deficit target of 3.9 per cent of gross domestic product.

The savings on subsidies on oil and fertilisers, thanks to a sharp drop in international crude oil prices, and the robust growth in tax revenues should exert that much less pressure on the government to rush with its disinvestment plans.

The bigger concern is the fate that awaits the government's promise on strategic disinvestment. Would the government go ahead with this?

There are no words on this so far from the government. Or will the definition of strategic disinvestment be suitably tweaked to accommodate the kind of equity sale that will only see reduction in the government stake in public sector undertakings without any privatisation?

In March this year, soon after the Budget presentation, finance ministry officials had stated that strategic disinvestment was certainly the government's intention, resulting in the management control passing over from the government to a private entity.

Technically, this could be achieved also through a shareholder agreement between a minority private sector holder of a significant chunk of equity and the government. This need not necessarily require dilution of government equity below 51 per cent.

But the impression one gets now is even that is unlikely to happen. Nobody in the government has been talking about strategic disinvestment any more.

What is more, the finance ministry website that lists the total disinvestment revenues the government plans to mobilise during the current year shows the budgeted receipts from disinvestment at Rs 41,000 crore.

So, has the finance ministry dropped its plans for strategic disinvestment? Or will that revenue be mobilised through some other head?

Either way, clarity on the government's promised plan for strategic disinvestment is needed.

Or is the fact of Rashtriya Swamsevak Sangh or RSS endorsing the government's policy direction an indication that strategic disinvestment or privatisation has been abandoned as a 'failed Western model of economic development'?

And if that is so, what is the alternative model that the government would pursue now so that its policies are more suited to Indian needs, as advised by the RSS?

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