Column: The time to sell had come

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Column : Please don’t do much

: On Thursday night, in front of a sell-out crowd, the Indian cricket team ran the Australian team quite close to very nearly pulling off a great win. On the same night, quite by happenstance, the Indian government pulled off a very tough victory. The government has managed to get a Cabinet nod for the largest ever disinvestment programme of public sector units. More than that it has articulated a policy on disinvestment that it can quote every time a company is presented on the bourses. Most importantly, it won a gamble in its budget making that was getting quite close for comfort.

Of these the last one is possibly the best reason why the programme got the nod. It concerned the economic stability of the country’s economy. In Budget 2009-10, the government had played a mammoth gamble with its finances. In the face of rapidly declining tax revenues and the need to run the printing press full time to finance a huge rise in expenditure, the finance ministry took a bet on the telecom sector. It wrote into its revenues a sum of Rs 35,000 crore as possible realisation from the auction of the 3G spectrum.

From the time it was made, this was an uncertain bet. The government had just eight months to get the highly fractious sector to agree to a time table for the auction and ensure it went through. Included in this schedule was the hope of getting ministries like defence to vacate the spectrum space. Matters, however, have got complicated thanks to the shenanigans of the telecom minister and the simultaneous debilitating price war let loose among the telecom service companies. The pay per second tariff regime has hit the bottomline of each one of them. And the companies are extremely reluctant to see the auctions coming up soon.

The implication for the government of the postponement, which is now almost certain, is therefore huge. The bond market is already reeling from the massive rise in the issue of government paper to finance the fiscal deficit. To keep the yields on government paper from rising further and eroding their value, the finance ministry has gone on record saying it will not exceed the target of borrowing set for this fiscal. If these tough conditions are to be met, the only available option that is available to the government is to find an alternative source of revenue.