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Krishnan Thiagarajan

POLITICS is all about scoring brownie points. That this, at times, impinges on economics is too well known. This has happened yet again.

Late last week, the UPA Government agreed to set up a National Investment Fund aimed at using the returns from investment of disinvestment proceeds to fund social sector projects and partly to meet capital investments in profitable public sector units from April 1.

Credit goes to this government to implement an idea seven years after it was mooted by Mr G. V. Ramakrishna, when he was heading the Disinvestment Commission.

The Finance Minister, Mr P. Chidambaram, however, used the occasion to take a pot-shot at the NDA government, and claimed that the UPA regime was discontinuing the predecessor's policy of "selling (of PSUs) and spending".

It is true that the NDA government took credit for the disinvestment proceeds and used it to bridge the Budget deficit. But what the Finance Minister failed to acknowledge is that his predecessor, Mr Jaswant Singh, in his interim Budget for 2004-05, had also finalised the modalities of setting up a Disinvestment Proceeds Fund, which was to have become operational from July1, 2004 after the Lok Sabha elections.

Political dimensions apart, one should not forget that while a National Investment Fund is a good move, its efficacy will hinge on the disinvestment proceeds accruing to the Fund.

Even in the past, several Budget speeches and questions in the Lok Sabha promises have been made to earmark the disinvestment proceeds towards social and infrastructure sectors.

But they failed to take off as the actual proceeds from disinvestment in any year repeatedly fell short of budgetary targets. In the last 13 years since 1991-92, the actual realisations have exceeded the Budgetary targets in just four years. So much for pious intentions!

The only exceptional year for disinvestment so far has been 2003-04, when the NDA government managed to mobilise Rs 15,547 crore against the budgetary target of Rs 13,200 crore.

This was thanks to the hugely successful sell-off of minority equity stake in six PSUs, including ONGC, GAIL, IPCL, IBP, CMC and Dredging Corporation of India.

One can no doubt find fault with "bunching of six high profile offers" within three/four weeks, which nearly derailed the disinvestment plans in February/March 2004.

Its final resounding success, however, clearly established the enormous appetite among the public for share of profitable PSUs. The UPA Government also scored a big success in the 5 per cent of equity disinvested riding on a public float made by NTPC in October 2004. It is clear that the government can raise substantial sums through disinvestment of minority equity stake without ruffling too many feathers.

At the same time, the Government has proposed deferring disinvestment of the minority equity stake in BHEL and Maruti Udyog to the next financial year, starting April 1.

Two inferences can be drawn from this. One, that the government will fall short of the disinvestment target of Rs 4000 crore set for 2004-05.

Two, at this stage, it is far from clear whether the differences with the Left over disinvestment can be fully sorted out.

The claims by the government that it has deferred the BHEL disinvestment to be able to command a better price, after its financial performance for 2004-05 seems.

For a stock like BHEL's one more quarter's performance may not make any difference to the offer pricing, given the company's intrinsic financial strengths and the robust order book position.

In this backdrop, the utility of the National Investment Fund can prove to be only as good as the corpus which flows into it via disinvestment.

Clearly, the real test lies in building a consensus among the coalition partners and making disinvestment happen, not only in BHEL or Maruti, but also in a slew of other companies lined up in the past few months.

The earlier this is done, the better for all parts of the Indian economy.

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