Moody's today said the Indian government's decision to sell stakes in public sector units is not a sustainable strategy and the move should be used moderately.
"Raising funds by selling stakes in state-owned companies is not a sustainable strategy," said the research arm of the agency Moody's Economy.Com.
It said with the government planning to sell stakes in state-owned companies "although raising funds from the stock market would jump-start projects without further pressure on the fiscal balance, it is not a sustainable strategy" Moody's said.
The agency added that a rise in initial public offerings of PSU companies could crowd out private firms which will have "a highly damaging effect in the current business climate of tight borrowing conditions".
"The government should therefore exploit this strategy only in moderation," it added.
Meanwhile, the government in the pre-budget Economic Survey tabled in Parliament today proposed to sell a minimum 10 per cent stake in all unlisted public sector enterprises and "auction" those that cannot be revived, thus suggesting a disinvestment target of Rs 25,000 crore per annum.
The prescription coincides with government declaring disinvestment as one of its top most priorities for mobilisation of resources, particularly, as it is free from the pressures of the Left parties that had obstructed the process in the last five years.
Finance Minister Pranab Mukherjee is likely to unveil the road map for disinvestment in the Budget, to be presented in the Lok Sabha on July 6.
Moody's while cautioning the government with regard to its disinvestment strategy also said that the policymakers have been exploring options that would support the stimulus projects but not compromise fiscal discipline and stake sale in public sector units is a part of that strategy.
Commenting on the annual budget to be presented on July 6, the agency said the Indian public has high hopes for the upcoming budget, but it is unlikely to please all as the government faces significant constraints.
