Investment fund set up to placate Left on selloff

New Delhi, Jan 27 | Updated: Jan 28 2005, 05:30am hrs
In a move that could blunt Left parties attack on the governments disinvestment policy, the Cabinet on Thursday announced creation of a dedicated National Investment Fund (NIF) from selloff proceeds. The returns from the fund would be used for social sector projects and for revival of PSUs.

Addressing mediapersons after a meeting of the Cabinet Committee on Economic Affairs (CCEA) on Thursday, finance minister P Chidambaram said that proceeds from disinvestment of PSUs after April 1 will find their way to the new fund. Public sector fund managers would manage the fund and the returns therefrom would be significantly higher than the dividend-market price ratio of PSUs, which at present is at 2%, he said.

The proceeds would be treated as capital receipts and as they are spent, would be reckoned as revenue expenditure. Mr Chidambaram said, The (previous) NDA (government) used disinvestment proceeds for current expenditure.

... target likely to top Rs 10,000 cr in 2005-06

Finance minister P Chidambaram is likely to fix a substantially higher disinvestment receipts target for the next fiscal.
According to finance ministry sources, the government has lined up a clutch of blue chip PSUs on the disinvestment roster next year, including ONGC, Maruti, Bhel and Nalco.
Civil aviation minister Praful Patel has also stated that the government would sell 10% each in Air-India and Indian Airlines before March 2006.
A 5% stake sale in ONGC alone could help the government raise close to Rs 6,000-7,000 crore, an 8% government equity sale in Maruti could fetch it another Rs 800-900 crore and a 10% stake in Bhel could bring another Rs 1,500 crore to the new fund. The government reckons that it could take the Left parties into confidence in this aggressive drive, thanks to the commitment to use the proceeds for funding either social sector projects or for revival of PSUs.

The proposal of the UPA government is that any new disinvestment proceeds will go to the National Investment Fund and be treated as capital receipts.

Defending the initial opposition of the Congress and other constituents of the UPA to the disinvestment programme of the NDA government, the minister said the previous government was using the proceeds mainly for bridging fiscal deficit. The setting up of the fund was in line with the National Common Minimum Programme of the government, he said.

The returns from the fund will be invested in social sectors like education, health and employment generation and for revival of sick PSUs, he said, adding the issue has been discussed with the Left parties at the co-ordination committee meeting.

Meanwhile, the CCEA deferred a decision on the sale of 10% government holding in Bharat Heavy Electricals Ltd and about 8% in Maruti Udyog. A decision will be taken up in the next few weeks. The note on Bhel could not be taken up today, Mr Chidambaram said.

While the government has fixed a Rs 4,000 crore disinvestment target for the current fiscal, it has garnered just Rs 2,684 crore till now.