Column : Good you gambled, but drop the bees

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: It is now two days since the budget documents were presented to Parliament and to the public. During this time, experts have gone over them with a fine tooth-comb, searched for hidden messages, pried out actual and imaginary statements that support or oppose their ideologies and, rated the budget exercise according to their likes and dislikes. What made the whole exercise very interesting is that this time around the Finance Minister was caught between two mutually exclusive choices—boost GDP growth back to 9 per cent per annum even if it means a high fiscal deficit or, maintain fiscal prudence and hope for faster growth next year.

Of course, there were some who maintained that growth and fiscal prudence were not mutually exclusive. It is true that revenues are down because of low growth and more expenditure will mean a greater fiscal deficit. However, the deficit can be brought down by disinvestment in public sector units. The only issue here is that, given the global financial crisis, and the lack of finances in general, who are going to buy these shares?

This is an important issue and needs to be carefully considered. There are two ways the government can disinvest—by selling a small proportion of shares to ensure that control is with the government or, selling more than 51 per cent of the shares so that management could move to private parties. Those supporting disinvestment do so by arguing that when management becomes private, companies become more efficient which essentially increase the return on assets. Hence, selling more than 51 per cent of shares will get a higher price for each share than selling less than that. However, giving up government control of public sector units is a very sensitive political issue and no pragmatic Finance Minister will base his budget calculations on the assumption that privatisation will sail through Parliament. More importantly, even if he were able to pass it through Parliament, with fragile markets he would have obtained a lower price than what he could expect to get in a more buoyant market. So, he has done the next best thing—he has done his deficit estimates without privatisation, or disinvestment. If it happens his deficit will be lower. Now, there can be a political and public debate on it and he has clearly indicated in his speech that he is willing to participate in such a debate.