The suggestions include winding up of the National Investment Fund and putting stake sale proceeds into the Consolidated Fund of India, dispensing part of the disinvestment proceeds to states and the need for the Centre to buy back stake in ‘high priority’ CPSEs.
Finance Minister Arun Jaitley has said the government has taken up these recommendations for consideration.
The biggest point of contention is likely to be the one on states getting a part of divestment proceeds. “The rationale seems to be that since there is devolution to states of the income tax the government earns from the CPSEs, there is perhaps a case for them getting a share of stake sale proceeds, since they do provide land, labour, and other resources for these CPSEs,” said Madan Sabnavis, chief economist with CARE Ratings.
However, ascertaining part-ownership of a CPSE will be nearly impossible for states to prove, he said. “For example, in the case of Coal India, how can you determine how much of the divestment proceeds would go to West Bengal and how much would go to Jharkhand?” he asked.
“Such a proposal is very difficult to implement,” said a former bureaucrat who has been a secretary in one of the key economic ministries. The person did not wish to be named as he is a part of a government panel.
Sabnavis said that even if the Centre decided to implement the proposal, it might require the setting up of a committee to work up a formula to dispense such proceeds in a fair manner. This will take time.
Another recommendation which could be rejected is that the government consider buying back stake for CPSEs in key sectors. The FFC has recommend the enterprises be categorised into ‘high priority’, ‘priority’, ‘low priority’ and ‘non-priority’.
“We also recommend the purchase of shares where the existing portfolio holding in the ‘high priority’ and ‘priority’ public sector enterprises is less than the desired level of government ownership,” the FFC had stated.
Both Sabnavis and the former bureaucrat concurred that at a time when the government is talking about greater efficiency in CPSEs and reducing its role in these, it does not make sense to buy back stake. "When you are progressively selling stake in these companies, why would you want to buy it back? It will send a wrong signal to the markets," said the official.
However, the proposal to end the National Investment Fund (NIF) was more doable, they added.
"Ideally, any stake sale proceed should not be used to shore up the fiscal situation. It should be used to re-capitalise sick public sector companies and state-owned banks or to fund public infrastructure. But since the NIF has not served that purpose and exists only on paper, it makes sense to wind it up," said Sabnavis.