The government should create a Sovereign Wealth Fund (SWF) by transferring its stake in PSUs as well as some unlisted firms to stabilise the Indian equity market and reorganise the disinvestment programme amid the coronavirus pandemic, according to former finance secretary Subhash Chandra Garg.
The Indian stock markets have lost over 35 per cent of their market capitalisation in the last three weeks amounting to over Rs 40 lakh crore, which incidentally is more than the entire budget of the Government of India for 2020-21, Garg said in a blogpost on Wednesday.
This market turmoil has also put the government's disinvestment programme in complete disarray, he said.
There is no likelihood that the disinvestment programme can begin in earnest for at least six months and the strategic sale of BPCL, CONCOR and SCI is also likely to get derailed for some time at least, he added.
"It is unlikely that the government would commence sale of LIC anytime soon with financial companies getting routed the most," he said, adding that Air India sale will also be impacted.
"The Government has two massive tasks before it. First, preventing the madness which has overtaken the equity markets to preserve the real businesses and values of Indian companies.
"Second, re-organise the disinvestment programme taking into consideration the reality of the situation," he said.
These objectives can be served if the government creates an Indian equities value preservation Sovereign Wealth Fund, he said.
This fund can be created by transferring the Government of India stake in all the listed companies and also some valuable unlisted companies. Their combined valuation would be about Rs 15 lakh crore, he estimated.
"Capitalisation of SWF of such large capital will allow the SWF to borrow from the market adequate amounts, in excess of (Rs) 10 lakh crore, easily. This war-chest can be used to buy equities of fundamentally strong companies available less than their intrinsic values," he said.
"Once the market stabilises, which it would definitely do - may be in a month, or three months or six months, the SWF can sell the equities purchased to pay back the debt taken," Garg said.
This operation would be a kind of Troubled Asset Relief Programme (TARP) launched in the US in the wake of global financial crisis in 2008, he noted.
After creating the SWF, the Department of Public Asset Management (DIPAM) would also not be required, Garg said.
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