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.
The disinvestment programme announced on Thursday night has to be examined in this context. While dressing up each company to approach the share market takes time too, at least the initiative will now lie in the government?s hands.
This is also the reason why Manmohan Singh?s cabinet has taken the risk of jettisoning the National Investment Fund. That fund was set up at the insistence of the left parties that were the make or break partners of the UPA-I government. The way the fund was sequestered from the government treasury, the Consolidated Fund of India meant no FM would ever find the enthusiasm to undertake the disinvestment plan. The left parties were of course cynically aware of this and hence forced through the measure. There is no doubt that the PM will stick to his decision of directing the funds for capital expenditure.
But the welcome pragmatism in the new decision will ensure there will be no need to keep an arms length separation from the government?s other moneys. This is the correct course to pursue. It is a common myth around the Indian budget making process that government spending is strictly demarcated between investment and consumption expenditure.
For instance, very few people know that while the funds to build a government school usually comes as plan, that is, capital expenditure, the payment of salary to the teachers is also part of that fund. Five years later, if the school adds a new classroom that expenditure will be classified as non-plan or supposedly revenue expenditure. Across every department in India, salary of each government employees is classified as plan and non-plan. The classification appears perfectly comprehensible to the staff but has been the basis of useless policies of which the national investment fund is a prime example.
To take another example, the salary arrears the government has paid out under the sixth Pay Commission award to its employees has acted as one of the stimulus measure for the economy. But the entire sum is a non-plan and therefore non-capital expenditure as per the government accounting system.
But if one were to hazard to guess if the disinvestment programme will be able to make good the difference from the non-realisation of the 3G spectrum auction, the answer would have to be negative. There are two reasons for this. Bringing in unlisted companies to the market will take time and should not be bunched together. The government would have a better chance with the listed companies, whose public float is less than 10% to offload more shares of those. Yet even here, the programme has to be sequenced. Raising even Rs 25,000 crore within March will be tough.
subhomoy.bhattacharjee@expressindia.com