One non-tax revenue source that Union Finance Minister Pranab Mukherjee is expected to bank upon while providing for social sector projects in the coming Budget is disinvestment. The change in the utilisation norms for the National Investment Fund (NIF) ensure capital expenditure in this regard will directly benefit from stake sale through public issues of government-owned companies.
As against a target of Rs 1,120 crore in the 2009-10 Budget, the government has managed till date to raise Rs 12,560 crore, including the Rs 8,300 crore expected to have come from the NTPC issue. This is despite the uncertain market conditions the public sector offers had to face. With at least two more issues of Rural Electrification Corporation and NMDC slated before this financial year ends, the government disinvestment kitty is expected to grow by another Rs 20,000 crore, giving it Rs 32,560 crore this year.
The next financial year could see similar fund raising through disinvestment, with issues of public sector companies expected to hit the market every third week. The government, though, is likely to keep its revenue target from disinvestment in 2010-11 to a conservative Rs 30,000 crore.
| DISINVESTMENT IN UPA TENURE SINCE 2004 | ||
| Company | Govt equity sold (in per cent) | Amount realised by the govt (in Rs crore) |
| NTPC | 5.25 | 2,684.07 |
| Maruti Udyog Ltd | 8.00 | 1,567.60 |
| (sold to employees) | 2.08 | |
| 10.27 | 2,277.62 | |
| Power Grid Corporation | 5.00 | 994.82 |
| Rural Electrification Corporation | 10.00 | 819.63 |
| NHPC Ltd | 5.00 | 2,012.85 |
| Oil India Ltd | 10.00 | 2,247.05 |
| NTPC | 5.00 | 8,400.00* |
| *estimated Source: Ministry of Finance | ||
Looking back over 10 years, there is a clear distinction between the approach followed by the National Democratic Alliance (NDA) and the United Progressive Alliance (UPA) governments. The NDA adopted the strategic sale route for PSUs; the UPA was cautious and has preferred to go for minority stake dilution through the stock market. The change was to handle political opposition to disinvestment and to also bring about “people’s ownership of the companies”.
Among the companies sold off to the private sector through the strategic sale route during NDA rule were Modern Food Industries to Hindustan Unilever, Balco and Hindustan Zinc to Sterlite Industries, Videsh Sanchar Nigam Ltd to the Tata group, IPCL to Reliance Industries and IBP to Indian Oil Corporation. Since some of these companies were merged with owner companies or weren’t listed, not much by way of comparison can be drawn on performance. Modern is no more visible as a brand in the bakery market and VSNL, now Tata Communications, lost its monopoly and saw its profit fall to Rs 515.95 crore in 2008-09 from Rs 1,407 crore in 2001-02, when it was divested. VSNL’s market capitalisation hads, though, increased to Rs 8,660 crore from Rs 5,328 crore on March 31, 2002. In the case of Balco, the company’s profit shot up to Rs 517 crore in 2008-09 from a loss of Rs 43 crore in 2000-01, when it was divested.
Between 1991 and 2009, the Central government raised a total of Rs 58,000 crore from disinvestment of shares of PSUs, of which Rs 37,000 crore had been raised through minority sales and the rest from strategic sales. The proceeds prior to 2005 were used up as part of the overall expenditure. The government then created NIF to meet the criticism of disinvestment proceeds being used to fill the fiscal deficit.
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The NIF guidelines specified use of interest income from the corpus for the specific purposes of social sector programmes or for the benefit of the public sector. Only those from the proceeds of divesting stake in two PSUs, Power Grid Corporation of India and Rural Electrification Corporation, amounting to Rs 1,814.45 crore, were used in this manner for three years. Now with the disinvestment policy changing the norms governing NIF, a larger corpus of proceeds instead of just the interest income would be allotted for specified social sector programmes.
Two things need watching in the next phase — how far the public holding of PSUs will help in improving their performance on productivity and governance, and, two, what benefit would accrue to the government from the public issues of these companies.