Drive to divest

The UPA government’s decision to disinvest at least 10 per cent of its stake in all Central public sector undertakings and list all profit-making and unlisted PSUs is bold and timely. The move follows the recent announcement of a five per cent stake sale in NTPC and 10 per cent in Satluj Jal Vidyut Nigam, and the NHPC and Oil India public issues. These had not, however, convincingly proved the government’s commitment to its declared goal of a high level and speedy pace of PSU disinvestment which would fetch an annual revenue of Rs 25,000 crore. A denial by the heavy industries minister of any plan to dilute the government holding in BHEL had strengthened doubts about the government’s plans. But the prime minister recently sought to clear these doubts and the latest announcement lays down a fairly clear disinvestment road map. It also pushes the economic reform agenda to a new stage.

The present plan is different from the UPA-I’s decision, taken under pressure from the Left parties, to park the disinvestment proceeds in a national fund and use only its interest for funding social sector programmes. The sizeable corpus of the proceeds, and not just the interest, will be used to meet capital expenditure of social sector schemes. This can ease the pressure of fiscal deficit, which is likely to hit a 16-year high of 6.8 per cent this year. In fact there should be greater flexibility in the use of the proceeds, which can be deployed for servicing and retirement of public debt too.

The programme has been announced when the environment is congenial, with the economy showing strong signs of recovery. The positive response from the stock market is a good augury and might indicate that the government will get the right price for its PSU stake in the market. This is important because many of the companies whose stakes will be sold are the nation’s family silver and cannot be sold cheap. Greater public holding in the companies, after disinvestment, will lead to better corporate governance and accountability in their management. It will also give more depth and stability to the capital market. About 25 per cent of the BSE’s market capitalisation is now accounted for by the PSUs. The PSU share in the market will go up after disinvestment and this can shield it better from extreme volatility. The plan has only been announced. It should be implemented without delay.

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