D-word back in PMs lexicon

Written by Economy Bureau | New Delhi | Updated: May 29 2009, 07:04am hrs
Manmohan Singh
Prime Minister Manmohan Singh uttered a word on Thursday that he hasnt used in a positive context for 1,472 days: disinvestment. Speaking after swearing in 59 new ministers at Rashtrapati Bhavan, Singh said, Fiscal prudence and disinvestment of public sector units: all these issues will be tackled by the finance minister in the Budget.

That disinvestment would be a key element of the governments effort to narrow its fiscal deficit was evident when Singh added, We would ensure economic growth momentum, but at the same time fiscal prudence will be kept in mind.

The last time the PM spoke about disinvestment on an optimistic note was as far back as May 16, 2005, while addressing a Congress Working Committee meeting. We must once again pursue disinvestment in public enterprises, both to raise resources for development and to make public enterprises more accountable and efficient, Singh had said at the time.

Barely a year later, Singh, who is in favour of listing all profitable public sector units (PSUs), had to abandon such plans thanks to the Dravida Munnetra Kazaghams rabid opposition to a proposed initial public offering by Tamil Nadu-based mining firm Neyveli Lignite. Taking into account their concerns, the Prime Minister, Dr Manmohan Singh, has decided to keep all disinvestment decisions and proposals on hold, pending further review, was the official line.

Though he did mention the word disinvestment twice since thenwith trade union leaders and while inaugurating a steel plant in West Bengalthe connotations were different. Our Government has reversed the previous trend of speedy closure and disinvestment of all PSUs and there is no blind disinvestment strategy without examining viability, the PM had said.

Coming early in his second innings, the Prime Ministers Thursday statement assumes significance as finance minister Pranab Mukherjee dodged a query about disinvestment in his first press conference on Wednesday.

While the Lefts exit from the UPA gives it leeway to adopt a more aggressive stance on stake sales in PSUs, a carefully calibrated disinvestment policy would be needed to ensure that its largest allies, the DMK and Trinamool Congress, dont create fresh roadblocks. Both the regional parties are expected to vehemently oppose divestment of PSUs located in their states (Tamil Nadu and West Bengal).

While it may not be possible for the Budget to list out all the PSUs that will have stake sales in this financial year, the PMs statement indicates that there will be some articulation of a disinvestment policy, a senior disinvestment department official told FE. While the existing National Common Minimum Programme does allow PSUs to tap the markets to raise capital, unless a clear new policy is laid out, it will be difficult to set goals for the next five years or plan to use divestment proceeds to fund the fiscal deficit, he pointed out.

If stake sales worth Rs 25,000-odd crore are scheduled each year, it will shave 0.5% off the fiscal deficit. Disinvestment proceeds are currently parked in the National Investment Fund, but if they were to be used to bridge the deficit, the fund would have to be wound up so that stake sale earnings can go directly into the Consolidated Fund of India.

The Congress election manifesto rejects what it calls NDA-style blind privatisation, but asserts the right of the Indian people to own part of the shares of public sector companies while the government retains majority shareholding. It also promises to keep PSUs in manufacturing and financial services in the public sector.

A political consensus will be necessary for a clear policy on disinvestment to be finalised and the government may consider it prudent to articulate it only after other crucial reform Bills have been railroaded through Parliament. Being gung-ho about disinvestment right away may jeopardise other economic reforms even before they take off, the official said.

While NHPC and OIL are ready to hit the markets anytime up to September, several other PSUs desperately need to raise capital for their expansion plans. With a government now firmly in place, their administrative ministries and boards of directors are expected to start laying the groundwork for their public issue of shares.

Apart from listing profitable PSUs, the disinvestment policy will also need to articulate how to deal with chronically sick PSUs. The government will have to be clear on what grounds a sick PSU would be revived, wound up or sold off to a strategic partner.