There are a number of reasons why the government ought to be concerned over the tardy progress of the public sector disinvestment programme. Against the budget target of raising Rs.40,000 crore, it has so far mobilised only a paltry Rs.1,145 crore. With just five more months to go, there is very little likelihood of the figure going up substantially. The extreme volatility witnessed in the stock markets in recent months is likely to persist, which means the disinvestment process will continue to be dogged by a high degree of uncertainty. Against this backdrop, it is understandable that the government should be wary of shedding its shares at this juncture. Moreover, there is the political factor to reckon with. After all, every such move in the past has evoked the accusation from the opposition that the government was “selling the family silver cheap.” The UPA II government has tended to play down the significance of public sector divestment as a means of mopping up capital receipts, emphasising, instead, the social objectives sought to be served by it. Even so, given the current state of public finance, all possible ways of augmenting revenues and reducing public expenditure need to be explored.
Half way through the year, the fiscal deficit is already at 71 per cent of the budget estimate for the whole of 2011-12. That the deficit target of 4.6 per cent of the GDP will be missed has been conceded by the Finance Minister. With the economy slowing down, tax revenues will be lower than expected. And, there is little prospect of a windfall, such as through spectrum sales. All these, however, cannot be an excuse for resorting to short-cuts to boost disinvestment. Reports say the government has under consideration two proposals, and both, if implemented, will be detrimental not only to the disinvestment programme but to the health of public finance as well. One of the options is to ask the cash-rich Public Sector Enterprises to buy a portion of government equity in other PSEs, a method that was tried out earlier, in 1998-99 when oil companies were asked to go for mutual investment. This way the government will get its money, but for the investing company, it will be a forced diversion of funds. The other option is to get the PSE to buy back its shares, the facility being restricted to the dominant government shareholder. The two proposals are inimical to the interests of minority shareholder, go against corporate governance norms, and might be violative of company law and regulatory provisions. The process of disinvestment is for the long-haul. Success lies in sticking to the basics and avoiding short-cuts.
