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Disinvestment and populism

Disinvestment and populism

What a government does with public funds is a good indicator of its governance credentials. A populist one often fritters away wealth, while one that believes in nation-building is most likely to use money for building infrastructure and using it to boost economic growth.

The question now is what will the Union government do with the money it will get from disinvesting a part of its stake in NTPC and Satluj Jal Vidyut Nigam (SJVN). The cabinet on Monday decided to sell 5% of its stake in NTPC and 10% in SJVN.

The proceeds will be deposited in the National Investment Fund (NIF), which was created in 2005. Seventy-five per cent of the income of NIF is to be used to promote education, health and employment, while the remaining 25% is to be used for meeting the capital investment requirements of profitable and “revivable" public sector units. That is where the problem lies.

This is the surest way to fritter away precious money. Given its current priorities, the Union government is likely to use the money to bridge its ballooning fiscal deficit or pump it into schemes such as the National Rural Employment Guarantee Scheme (NREGS). While there are many reasons for India’s huge fiscal deficit, which is estimated at 6.8% of the gross domestic product for 2009-10, financially reckless schemes such as NREGS are a major contributor to the mess in India’s public finances. Keeping that in mind, even if this money is used for plugging the fiscal deficit, it will be implicitly funding NREGS.

Last week, India signed loan agreements to the tune of $4.2 billion with the World Bank. Of this amount, $2.2 billion is meant for infrastructure financing and power development. Why can’t disinvestment money be used to fund these ventures? Why must it be frittered away in NREGS and other forms of consumption? Social sector spending has powerful advocates and if the government feels that such expenditure is essential, then it must find alternative sources of funding. Selling of stakes in public sector units that were created by taxpayers’ hard-earned money should not be a source of funding for political projects.

Should the government use money from disinvestment to fund social sector spending? Tell us at views@livemint.com

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