Exit lines

The return of disinvestment in the reform lexicon is timely and welcome.

By: Editorial | Published:October 31, 2016 12:30 am

AT a time when public finances are stretched and the private sector is not so confident about investing, it is imperative the government explores alternative routes to raise funds. That money could then be spent on creating productive assets. In this backdrop, the Union cabinet’s decision last week to go ahead with strategic sales in select public sector undertakings (PSUs) comes as an apt move. But the more significant aspect of the decision is the quiet return of the term “strategic disinvestment” in the reforms lexicon. For the last 12 years or so, India has, for political reasons, put good money after bad to keep PSUs alive. The present NDA government too has in its first two years maintained a studied silence on the strategic sale of PSUs, and almost given an impression that it was not different from its predecessor, UPA 2, on this count. The last transaction of strategic sale was during the previous NDA 1 reign when A.B. Vajpayee was prime minister in 2003-04 — 72 per cent of government stake in Jessop and Co was sold to Indo Wagon Engineering for Rs 18.18 crore.

It is indeed a bold call, particularly because the BJP election manifesto of 2014 had remained silent on the issue of PSU disinvestment. The party had, during NDA-I under Vajpayee, come under sharp criticism from several quarters for allegedly attempting to sell state assets cheap, particularly those of oil PSUs. But now, the decision of NDA 2 to revive strategic sale as an option seems part of a larger gameplan to revive the public sector. After a detailed analysis by Niti Aayog, some 44 PSUs are being set aside for strategic sale. Certainly, the government has no business to be in these businesses and the value of such investments can be realised by identifying strategic fits from the private sector.

The government has estimated receipts of Rs 20,500 crore through strategic sales in the budget this year. It is critical to realise this for two reasons: One, tax collections may not meet the target for this year, making every rupee from other revenue generating sources count, and, two, this will help generate money for growth when fiscal discipline requires the government to not exceed its borrowing target. To make strategic disinvestment politically acceptable, the government needs to explain to the people that this is not an asset sale, but only an asset swap. By exiting businesses where it should not be present, the government is only serving the people by investing in roads, schools and hospitals. A transparent mechanism to undertake strategic sales will ensure these do not trigger controversies.