Govt changes stake sale rule to cut fiscal deficit

Govt changes stake sale rule to cut fiscal deficit

New Delhi: The government on Thursday changed rules on using central stake sale proceeds and made it mandatory for all profit-making, listed, state-run firms to float at least 10% stake, in a move aimed at cutting its fiscal deficit.

All unlisted state firms making profits in the past three consecutive years will also be listed, Union home minister Palaniappan Chidamabaram said at a briefing after the Union cabinet took the decision.

“In view of the tight fiscal situation and the need to fund social security programmes, special dispension is being made for a three-year period: 2009 to 2012," he said.

The proceeds of the disinvestment will be used for capital expenditures on social security programmes, Chidambaram added, but clarified monies gained so far this fiscal year from stake sales would not come under the new rule.

The move will help India cut its fiscal gap, which is seen widening to 6.8% of gross domestic product by the end of the current fiscal year in March, from 6.2% a year ago.

Stake sale proceeds are currently put in a National Investment Fund, and only its dividends are used for social security schemes. These rules will reapply after 2012, Chidambaram said.

Two state-run firms went public earlier this year, raising more than $1.8 billion totally.