The success of the initial public offer (IPO) by Coal India Limited has drawn policy makers’ attention back to the idea of disinvesting government equity in public sector undertakings (PSUs). Not only that, the massive response received by the Coal India issue from institutional investors has prompted officials in the department of disinvestment to reassess their numbers on the additional revenue they may be able to raise through share sales in more PSUs.
In all likelihood, the government may take home an estimated Rs 59,000 crore during 2010-11. How big this amount is can be gauged from the fact that this will only be a little less than the entire disinvestment proceeds the government managed to garner in the last 18 years — between 1992-93, when the sale of PSU shares in small tranches began under Manmohan Singh as finance minister, and 2009-10.
The estimate of Rs 59,000 crore includes Rs 15,000 crore already mobilised through the Coal India issue and another Rs 1,000 crore each from similar issues by Sutluj Jal Vidyut Nigam and Engineers India Limited. The department of disinvestment is now in consultation with administrative ministries looking after the Steel Authority of India Limited, the Indian Oil Corporation and the Oil and Natural Gas Corporation. The latest estimate is that the government can rake in at least Rs 44,000 crore from follow-on public issues of shares of these companies in the last quarter of the current financial year.
If you add another Rs 5,000 crore to be mobilised through the sale of government equity in the Power Grid Corporation, Rs 1,300 crore from the Shipping Corporation of India and Rs 4,000 crore each through a similar exercise involving Manganese Ore India and Hindustan Copper, the total mobilisation through disinvestment proceeds may even cross Rs 59,000 crore.
Finance Minister Pranab Mukherjee, who already enjoys a healthy fiscal cushion by substantially exceeding the target he had set for proceeds from the auction of 3G telecom licences, will now benefit from another bonanza. Disinvestment proceeds may well be 50 per cent more than the Rs 40,000 crore he had budgeted for in the current year. Meeting a fiscal deficit target of 5.5 per cent of gross domestic product in 2010-11 will certainly not be one of his concerns this year.
Government officials point to two significant dimensions of this sudden change in the government’s fiscal state. One, not many senior bureaucrats in the finance ministry expected disinvestment to be back on the government’s agenda with such gusto. In its last year (2003-04), the Vajpayee-led government of the National Democratic Alliance had raised over Rs 15,500 crore from PSU shares sale. With the United Progressive Alliance (UPA) government of Manmohan Singh coming into power in 2004-05, with the support of the Left parties, the idea of disinvestment came under question.
What used to be a full-fledged ministry for disinvestment was reduced to a virtually dormant department of disinvestment in the finance ministry. The government set up a National Investment Fund in a bid to assure the Left parties that proceeds from disinvestment would be used to strengthen the public sector. No fresh disinvestment proposals were under consideration. In the first term of the UPA, the government did not get even a penny from the disinvestment of its stake in PSUs in as many as two years. In the remaining three years, annual disinvestment proceeds ranged between Rs 2,000 crore and Rs 4,000 crore.
In its second tenure, the UPA government revived the idea of disinvestment since it no longer had the Left parties as its partner. There were still many forces left within the UPA who expressed deep reservations about disinvestment, and a few senior bureaucrats in the government even advised the political leadership to go slow on PSU share sales. The finance minister, however, paid no heed to such advice and went ahead with disinvestment in a big way. Indeed, in the very first year of the UPA’s second term, the government mobilised Rs 23,500 crore through disinvestment and the National Investment Fund was given a quiet burial.
So, if all goes according to Mukherjee’s plan, the government would get about Rs 83,000 crore through disinvestment in two years. This is where the second dimension of the disinvestment policy kicks in. The receipts from disinvestment have masked the actual level of fiscal correction that the government will manage to bring about in this period.
Assuming that disinvestment proceeds will shore up the government’s finances only for a couple of more years and will not create a durable long-term revenue stream, serious questions arise over the nature and sustainability of the fiscal correction that Mukherjee has claimed so far in his Budgets. Indeed, fiscal policy experts have argued that governments should not calculate disinvestment proceeds while measuring the gap between their total revenues (excluding fresh loans) and expenditure. Finance ministry bureaucrats will do well to take note of such caution amid the current euphoria over a successful disinvestment programme.
