Sell by date

With the UPA cabinet clearing small equity sales in two non-navaratna PSUs NALCO and Neyveli Lignite after a long time, that familiar dilemma confronts us again. Should we be happy that a little something has been done given the nature of current politics, or despair once more that simple, logical economics is a victim of politics? While it would be foolish not to recognise the internal and external doubters and statists the prime minister and finance minister have to deal with every time genuine reform is on the cabinet agenda, it would be equally perspective distorting not to remind ourselves just how much India loses by not having a radical disinvestment policy. It is perfectly possible, in a rational political set up, to sell one big PSU every year, or sell equivalent equity distributed among a number of PSUs. Given the increasing depth and width of the capital market, such a policy can easily raise substantial funds. Finance ministers would love it because they are always scrounging for funds for capital expenditure every budget. Then there are assets held by many PSUs, especially real estate. These can fetch handsome returns.

Indian PMs and FMs don8217;t need to do a Maggie Thatcher on selling PSUs although look what that did to revive the British economy. A calibrated but consistent disinvestment policy can fetch funds which would free social sector policy from a budget constraint, that can make a universal social security net a realistic goal, that can free the FM from having to play around with tax rates and new taxes to extract more money. Now that there8217;s a National Investment Fund, thanks in part to the Left8217;s arguments for channeling PSU sale proceeds, the use of disinvestment for deficit plugging 8212; a very bad idea 8212; will also not be possible. Who will oppose disinvestment under such arguments and arrangements? Many, as the UPA8217;s painfully incremental sale of PSU equity shows.

And while the opposition continues, another force works inexorably 8212; the opening up of many sectors reduce the valuation of major PSUs. Maruti was a classic case. LIC is a classic in the making. Even suggesting LIC be disinvested is sacrilegious. But, as private insurers gain ground, LIC will be losing its market valuation. The potential returns to public funds invested goes down. And that8217;s supposed to be pro-people.