On the back of some positive decisions in recent weeks, the re-energized United Progressive Alliance is pushing hard to achieve the Rs.30,000 crore disinvestment target that it had set itself for the financial year. Achievement of this goal has become important, as any shortfall will only increase the fiscal deficit, which is widely expected to cross 6% of gross domestic product.
However, the larger question, once again, is can selling shares in public sector companies compensate for poor fiscal management? Theoretically, if the government did not care for prices and market conditions, which it does, a larger quantum of share sale would have brought down the deficit by a great extent. But surely, this is not the desired way of approaching either disinvestment or public finances.
Disinvestment should not be treated just as an event of share sale and generating revenues, but part of a larger process of bringing in transparency and increasing efficiency by way of wider shareholding which, apart from pushing the company closer to market realities, redefines objectives and increases productivity. Small, arbitrary and need-based selling, just to plug the fiscal gap, will not help fulfil these objectives. The government needs to prepare medium- to long-term plan as to what it intends to do with every single company it owns. There has been no word for a long time on what the government wishes to do with state-run telecom firm BSNL, for example. Further, it will have to give up the fixation of keeping 51% stake with itself, effectively keeping control on the management and maintaining the public sector nature of the company, which defeats the basic purpose of disinvestment.
On the proceeds of stake sale, the government announced National Investment Fund in 2005, but later exempted itself from putting in proceeds till the end of current fiscal, citing difficult economic conditions. The government may choose to continue to show disinvestment inflows in the budget and use it purely for capital expenditure, or spend it on large scale infrastructure projects.
Ideally, unlocking value in assets in one area should create assets in other areas. Arbitrarily, stake sale just to plug deficit, or fund consumption expenditure, will always underserve the idea of disinvestment.
Should the government be using disinvestment as an instrument only to reduce deficit?