Needs to move away from looking at government stake-sale proceeds for bridging fiscal deficit
Going by the current state of affairs, the existing disinvestment strategy—drawn up during the UPA regime—has to be among the first few policies that the NDA government must review in the next budget.
Year after year, the government has failed to meet the disinvestment target fixed in the budget. The way things are going, the outcome in FY15 appears no different, with a R43,425 crore target and only R1,700 crore realised so far from the 5% stake sale in SAIL. And with big-ticket ONGC and Coal India divestments looking uncertain, there is no doubt that this is not the best course of action.
The current method of fixing a target based on the needs of the finance ministry to bridge fiscal deficit and then forcing the department of disinvestment to find ways to get to that target has proved to be a failed exercise—in the last four financial years, only R75,813.71 crore could be realised against the total target of R1.5 lakh crore.
This not only creates uncertainty but is also not the best way of handling the Central Public Sector Enterprises (CPSEs).
A clear de-linking of the divestment process from this “chasing target” business and formulating a holistic strategy to deal with the CPSEs is certainly a better idea. One of the ways to do this could be going back to the disinvestment commission model as suggested by the Parliamentary Standing Committee on Finance in its report this week.
With the North Block already buzzing with the new ideas for the next budget, finance minister Arun Jaitley will do well to put the Standing Committee’s recommendation on the discussion table.
The panel has said categorically that, “the fact that a continuation of disinvestment programme without reviewing the disinvestment policy including its modalities would doubtlessly end up in failure as experienced in the past”, and has urged the government, “to constitute a new Disinvestment Commission to review the disinvestment policy and restructure the modalities of the disinvestment in the light of current economic scenario without any further delay”.
The finance ministry, obviously, is not in favour of bringing back the disinvestment commission. The ministry’s point is that the commission—the previous one was constituted in 2001 and was wound up on October 31, 2004—was an advisory body which made its suggestion on the basis of the government policies whereas in the current set-up, it is the finance minister who takes the decisions and oversees the whole process of stake-sale, which can go up to a total of 49%, in the public sector companies.
But if the commission had been just an advisory body in the past, what stops the government from expanding the domain of the commission by making it a permanent body looking at all the aspects of disinvestment, beginning with identifying the companies to playing an active role in conducting the stake-sale programme with the help of a comprehensive roadmap that can be adjusted suitably, especially when the performance of the department of disinvestment has been so poor in this.
In fact, the commission in its earlier avatar, did a fairly good job. The first Public Sector Disinvestment Commission was constituted in August 1996 with a three-year term under G V Ramakrishna. Its term was extended till November 30, 1999, and it submitted reports on 58 companies.
The Commission was reconstituted in July 2001 for a two-year period under R H Patil and it worked till October 2004, and submitted reports on 41 CPSEs, out of which 4 CPSEs (NCL, MOIL, RITES and PEC) were review cases of the recommendations of the earlier Commission.
The commission didn’t recommend strategic sale in 20 cases. In 6 cases, it suggested an offer for sale of minority shares. Out of these, an offer for sale of MTNL shares was conducted in December 1997 while in the case of NALCO, the disinvestment proposal was not pursued after July 2003.
In 12 cases, the government decided not to pursue strategic sale/disinvestment, out of which, in 3 cases, bidders were not found; and in 11 cases, strategic sale had been carried out, out of which, in 2 cases, privatisation has been partly implemented—19 hotels of ITDC and 3 hotels of HCI have been privatised.
Considering that the commission was pursued by the previous NDA regime and got disbanded in the UPA regime, and also the fact that prime minister Narendra Modi appears to be more inclined to exhausting all the chances of reviving a public sector company before selling it, the reconstitution of the commission will not only help in drawing a fresh roadmap but also suggest different options for handling the CPSEs.
There is no doubt that the commission did bring in transparency in the government stake sale process during the previous NDA period. As against the UPA model of selling stakes in the small tranches of 5% and 10%, the method followed then was to first try and revive a PSU, and only if that was not possible, dispose it off in the market to the best buyer with management control.
The big question now is: will Jaitley revert to this model considering the pressures posed by the tax shortfalls? It would be a good move, if he did. An announcement for the reconstitution of the disinvestment commission in the upcoming Budget would be the first move in this direction.