gopalakrishna

NOW that the government has survived the trust vote in Parliament and in the bargain also got rid of the millstone around its neck (read the Left parties), speculation is rife about the kind of reform initiatives it could undertake in the months to the next general elections.

Disinvestment, especially of small stakes in profitable public sector undertakings (PSUs) is, perhaps, the least controversial of these. The revival of sentiment that saw stock market clock substantial gains during the last week has dramatically increased the market cap of a host of listed PSUs.

Shares of companies like National Aluminium are up 33% since July 9, while many others have also registered substantial gains. As of Friday last, the BSE PSU index was up 12% since July 9 even as the broader market as reflected by the sensex had gained just 2.2%.

This presents a golden opportunity for the government to kill two birds with one stone. First, it could use the disinvestment proceeds to free up budgetary resources. Under the UPA’s common minimum programme, disinvestment proceeds cannot be taken as part of revenue but must go instead to the National Investment Fund.

To that extent, it does constrain the government. But 75% of the annual income of the fund can be used for financing select social sector schemes while the balance 25% can be used to meet the capital investment requirements of profitable and revivable PSUs.

Second and no less important, it would provide the much required stimulus to the dormant primary market. With few private sector companies willing to test the waters in an uncertain economic climate, the market for initial public offers has all but dried up.

But PSUs do not have the same compulsion as private sector companies to maximise IPO pricing. Indeed, the most successful privatisation programmes were ones that left something on the table for ordinary investors. Hence, a few issues by blue-chip PSUs would go far to improve sentiment. Disinvestment has been a dead letter for the better part of the UPA rule.

So far, the government had the excuse that its Left allies were not allowing it to tap the market. But that no longer holds. If the government continues to fight shy now, it would expose the UPA as no less anti-reform than its erstwhile allies

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