Selloff fund to be set up soon

Govt to sell stake in Bhel, Maruti in 2005-06

A disinvestment fund to channel the proceeds from the sale of government equity in public sector companies appears a certainty. The Cabinet will discuss the proposal along with the sale of the government's equity in Bhel and Maruti on Thursday.

While a part of the corpus of the proposed fund will be reinvested in strengthening the public sector, the rest will be used for funding social sector schemes "" priority areas for the United Progressive Alliance (UPA) government.

Officials told Business Standard the proposal to set up a dedicated fund was being taken up following the resource constraint faced by the government in financing social sector programmes. So far, disinvestment proceeds have gone into the Consolidated Fund of India.

The proposal was discussed by Prime Minister Manmohan Singh, UPA Chairperson Sonia Gandhi and Finance Minister P Chidambaram at a meeting with the Left parties last week.

The Left had agreed to the sale of the government's stake in Bharat Heavy Electricals Ltd (Bhel), subject to the establishment of the disinvestment fund. Chidambaram told reporters today the Cabinet would consider the Bhel and Maruti stake sales on Thursday.

"We hope to get a better price next year since Bhel is expected to have a better profit," Heavy Industries Minister Santosh Mohan Dev said.

The proposal was also discussed at a meeting between Chidambaram and Heavy Industry Minister Santosh Mohan Deb today. The two ministers agreed to the sale of a 10 per cent stake in Bhel and up to 8 per cent in Maruti Udyog in the next financial year. The sale is expected in the second quarter.

Officials said the stake sale in Bhel would be likely through a public offer, with some portion of it earmarked for employees. The government also wanted financial entities to acquire a sizeable chunk of the shares, Deb said.

In the case of Maruti, the stake will be sold to banks and insurance companies. Deb said the sale was proposed in the next financial year as the government hoped to realise more value from the shares.

He said the Bhel stake at today's prices would fetch the government Rs 1,600 crore, while the Maruti sale was expected to generate Rs 800-900 crore.

An official said the disinvestment fund would serve the twin objectives of meeting the costs of the social sector and also strengthening the public sector. The corpus of the fund was also expected to earn the government substantial interest.

"It is also one of the several new avenues being considered by the government since there is a limit to which one can generate tax revenue," the official said.

The previous National Democratic Alliance (NDA) was also considering the proposal but the idea could not fructify.

The Planning Commission had sought a gross budgetary support of Rs 1,95,000 crore for 2005-06, of which Rs 39,500 crore were required for the NCMP-related schemes.

The government has already committed to scale up expenditure on schemes like the Sarva Shiksha Abhiyan, the mid-day meal and the food-for-work schemes, which will mean an additional expenditure of about Rs 20,000 crore, said officials.