Divestment still on cards: Govt

Investment Fund May Go, Its Money Used To Plug Deficit

New Delhi:Finance minister Pranab Mukherjee on Tuesday clarified that contrary to the general impression, he had already laid out a roadmap for reining in the fiscal deficit. Meanwhile, his officials explained why the divestment route had not been used to bridge the deficit this year—as things stand, it can't be used for that purpose, though steps would be taken to change the situation.
    Officials also elaborated on the minister's promise in the Budget that the floor on non-promoter holdings in all listed companies would be hiked. The floor, they said, was likely to be set at 25%, a move that would also enable the government to justify equity sales in a whole host of PSUs.
    Mukherjee said that the budgeted fiscal deficit of 6.8% of GDP for the current year was scheduled to be brought down to 5.5% next year and further to 4% in 2011-12 and he had made this explicit in the budget documents. Officials also pointed out that 6.8% was already an improvement over the effective figure for 2008-09, at 8% including bonds given to fertiliser and oil companies which are not reflected in the official deficit figures.
    On the divestment issue, officials said that as things stand, all proceeds of divestment must go to the National Investment Fund (NIF) and as a result they cannot be used to close the fiscal deficit or to fund expenditure on social and infrastructure sectors.
    The government is now seriously considering abolishing the NIF, which was set up during the tenure of the first UPA government to counter pressure from the Left, which was opposed to disinvestment. The NIF was supposed to be used for retraining workers facing retrenchment and rehabilitating sick PSUs.
    A day after the presentation of the Union Budget, a top finance ministry official said abolishing the NIF had become important as the existing guidelines barred the government from funding its budget deficit using the fund's corpus. As of now, only the interest component can be used.
    Under the stringent rules of the NIF, the government had agreed not to touch the corpus of the fund and instead use the income earned from interest for select social sector schemes, and a quarter of it for meeting capital investments in revival of PSUs. "There is a very clear understanding in the government to move ahead on disinvestments,'' the official said on Tuesday, and added that it would go in for sale of equity in listed PSUs so that they have at least a 25% public holding. That would create enough resources for funding the government's key projects and flagship schemes, they said.
    Back-of-the-envelope calculations by TOI show that if just about a dozen listed PSUs were to meet the 25% floor by disinvestment, the government could raise about Rs 1.20 lakh crore at current market prices. In happier market conditions, the figure could be even higher.