Shortfalls, again | Business Standard Editorials

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Union Budget must stop relying on disinvestment proceeds

In recent years, the government’s disinvestment targets in the Union Budget have shown considerably greater ambition than they did earlier. In the Union Budget for 2020-21, the amount due to be raised from disinvestment receipts was an enormous Rs 2.1 trillion. In the Budget for the ongoing fiscal year, the target was only mildly less ambitious, at Rs 1.75 trillion. Yet the disinvestment programme’s failures, in revenue terms, have kept pace with this ambition. In the 2020-21 fiscal year, the target was missed by almost Rs 1.8 trillion. And it looks very much like there will be an analogously large shortfall in this year’s target as well.

The fundamental flaws in the current approach to private sector ownership of assets created in the public sector are revealed by the enormous sizes of these shortfalls. The shortfalls would not have been so large if the purpose of the programme was in fact to ensure that assets were better managed in the private sector. The shortfalls are of this magnitude because the targets for receipts are determined by the fiscal mathematics of the Union Budget, and not by a real commitment to the disinvestment, strategic sale, or privatising the public sector. Consider the fact that both the Life Insurance Corporation of India and Bharat Petroleum Corporation Ltd (BPCL) were supposed to be the mainstay of the government stake sales in the ongoing year. Even if LIC is listed, bringing in Rs 1 trillion or so, it is reported that BPCL may not be sold this year.

This is because the government is simply unsure whether there is sufficient demand in the market for the company. It appears that while there may be bidders, they have not been able to find suitable partners. Any properly-run disinvestment programme would have estimated in advance what the demand for an enterprise such as BPCL was, and thereby decided the timing and valuation for its sale. But, in fact, the sale for BPCL was planned for the ongoing year in order to help manage the predicted fiscal deficit for the year in the Union Budget. Naturally, therefore, it is not going to plan.

The government needs to detach the disinvestment and privatisation programme from the year-to-year needs of the fisc. A step has already been taken to set up a National Monetisation Pipeline. An institutional backdrop is also required for the stake sale programme, in which companies for privatisation are identified from first principles, and not on the basis of the revenue they are likely to bring in. There is also a need to improve the standards and quality of their paperwork to the levels expected by private sector bidders. Many sales fail or are contested because things are not in order within the public sector units. Insulating stake sales from the arbitrariness of the current process will also ensure that the bureaucrats and politicians involved in the disinvestment programme will feel somewhat more secure. They will be able to point to the principles on which a sale has been conducted as insulation from subsequent malicious inquiries and prosecutions. Once this is done, the Union Budget itself will be forced into relying on real questions of revenue and expenditure to manage its fiscal mathematics, with any receipts from the disinvestment programme coming in as a welcome extra.

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