Why is it necessary for finance minister Pranab Mukherjee to save up a fund within the government vaults while running around to skew the cost of domestic and foreign credit to industry, cripple public sector companies through a buy-back programme and impose an additional layer of inflation?

The puzzle is about a nest egg the government is guarding assiduously at the cost of so much to the economy. The shares and assets the finance ministry holds under the Specified Undertaking of the Unit Trust of India are more commonly known through its horrible abbreviation, SUUTI.

This entity was carved out from the holdings of the erstwhile UTI after it collapsed in 2001. The valuation of the holdings of the trust, done about a year ago, showed it ranged between R35,000 crore and R40,000 crore. Or about the same sum the government is at pains to raise through its disinvestment programme this fiscal.

It is nobody?s case that disinvestment should not go through. But what in heavens is the government rationale for not having availed the benefits of SUUTI, before rushing forth to announce the additional borrowing calendar on Thursday?

The SUUTI holdings, other than some of the commercial and residential buildings that UTI owned in Mumbai, are made up primarily of shares of listed companies. Of these, the majority are shares of Axis Bank, L&T and ITC. It also used to hold RIL shares but those have been sold off. In addition, there are small amounts of shares in some entities like Stock Holding Corporation of India Ltd and several unlisted companies.

Just what social service the government seeks to complete by holding on to these shares is something that none of the finance ministers since 2001 have cared to answer. None of these three companies are in the public sector and how their affairs are run should not be the lookout of any government-appointed body. But holding on to their shares fortifies that impression.

SUUTI, as it was set up, was meant to progressively pay off the holders of units of all schemes of former UTI from the fund as and when they matured. This work was already over by 2009, when the last of those schemes of UTI was extinguished. The government, when setting up SUUTI, had also specified a terminal date for the entity to be disbanded thereafter, which too was 2009.

But not only has SUUTI survived since then, its assets, as the valuation reports show, have expanded and the government is more keen to keep it going, even at the cost of inflicting a R50,000-crore bill on the economy.

A related thought: these shares in SUUTI were bought from the funds that were financed by millions of investors who had subscribed to them. But when UTI collapsed in 2001, the investors were repaid on the basis of a set percentage. But the underlying shares have remained. If these shares are now sold off, as they should be, shouldn?t the sum be distributed to those millions as their rightful equity? Obviously, selling those shares in the current state of the equity markets could fetch the finance ministry a lower amount, but no auditor is going to crib about such a distress sale when it yields far more significant benefits for the exchequer.

Such a sale would also expand the pool of blue chip shares in the market, benefiting the investors. So there must be very significant considerations for the government to hold on to the shares, even more important than the cost of buy-back of shares of government-owned companies, which it plans to do to salvage its budget.

When Mukherjee had presented Budget 2011-12, it became quite apparent he will have to borrow more from the market to shore up the balance sheet. He had stitched up a fiscal deficit figure for 2011-12 that was impossible to reconcile with the constraints which loomed even in February.

At that time, it was the puny petroleum subsidy estimate that had made analysts question how the minister planned to limit the deficit to just 4.6% of GDP. As the year progressed and the global economy clouded over, other constraints became real. The first indication that the government was finding it difficult to balance its cash flow with the receipts became evident in August when it brought ahead a scheduled market borrowing by more than a week.

The announcement of the additional R53,000 crore of market borrowing to the R3,44,000 crore it had pencilled in as a budget estimate is, therefore, not wholly unexpected. The finance ministry has a larger gap to fill in and this is the shortfall in the disinvestment target of R40,000 crore for this year.

To make up this shortfall, the economic affairs secretary in the finance ministry has said the disinvestment ministry is planning a buy-back of PSU shares. But companies like ONGC, IOC or SAIL are crippled for investment resources. A buy-back will reduce their equity base, making their resource gap even more difficult for them. The very reason why they are supposed to be disinvested is that the government is not able to pump in additional resources into them to finance their expansion. So the plausible way for them to do so is to approach the public. Thus, the plan is a highly short-sighted step.

Incidentally, Sebi looks rather dubiously at buy-back for the same reason as an anti-equity measure and for this reason puts in numerous checks for promoters to come up short. It will be interesting to see how it reacts to this measure from the government. But all this at the cost of preserving the investment in SUUTI means there is far more at stake here, which we are unable to comprehend.

subhomoy.bhattacharjee@expressindia.com