The Hindu Business Line : At last, a Disinvestment Proceeds Fund

Having so far used the proceeds of privatisation to pay for the profligacy of politicians and bureaucrats, the Government has curiously forgotten to highlight the fact that it has finally decided to set up a Disinvestment Proceeds Fund, a laudable move even if rather late in the day, says Paranjoy Guha Thakurta.

STRANGE indeed are the ways of the government, especially the BJP-led NDA regime that hopes to obtain a favourable mandate from of the electorate in the coming months. Even when it does something positive, it is strangely reticent about publicising the move, leave alone shouting from the rooftops about its decision. The reluctance could be explained by the fact that this decision — call it an achievement, if you like — was belated and should have been taken much earlier.

The decision, in any case, would be implemented only after the outcome of the 14th general elections is known and a new government is in place in New Delhi.

To kill the suspense, what is this decision all about? Tucked away in the bunch of documents made public on February 3, the day the Finance Minister, Mr Jaswant Singh, presented his vote-on-account and Interim Budget for 2004-05 in Parliament, on page 12 of a thin (16-page) document entitled "Implementation of Budget Announcements (2003-04)" are the following two sentences: "Disinvestment Proceeds Fund: The modalities for setting up the Fund have been worked out. The Fund is expected to be operational from 1st July 2004."

Behind this innocuous-sounding announcement lies a chequered and convoluted history, a past that partially explains why the Government's policy of privatising profitable public sector undertakings as well as divesting equity shares of such PSUs has been — and remains — so controversial. Before going back in time, it would be instructive to first look at two relatively recent statements.

In the wake of the government's contentious attempt to privatise Hindustan Petroleum

Corporation Limited, on December 9, 2002, the Disinvestment Minister, Mr Arun Shourie, had told the Lok Sabha: "In order to provide complete visibility to the government's continued commitment of utilisation of disinvestment proceeds for social and infrastructure sectors, the government would set up a Disinvestment Proceeds Fund. This Fund will be used for financing fresh employment opportunities and investment and for retirement of public debt." Thereafter, on the last working day of February 2003, the Finance Minister, Mr Jaswant Singh, had stated: "Details about the already announced Disinvestment Fund... shall be finalised early in 2003-04."

Twelve years ago, the Finance Minister in the P. V. Narasimha Rao government, Dr Manmohan Singh, stated in his first Budget speech, delivered on February 29, 1992, that he had taken credit for Rs 2,500 crore as receipts of disinvestment. He added that the government would "consider a further sale of equity of Rs 1,000 crore to provide resources for the National Renewal Fund during 1992-93, which can be used for various schemes of assistance to workers in the unorganised sector, including women workers, who may be adversely affected by the process of economic restructuring."

Dr Manmohan Singh further stated that such "non-inflationary resources" would "also be used to fund... special employment creating schemes in backward areas."

In 1997, the first report of the Disinvestment Commission headed by Mr G. V. Ramakrishna had suggested that the proceeds of disinvestment should not be used to reduce the Budget deficit but instead be placed in a separate fund to be used for the following four purposes: (a) retiring public debt; (b) restructuring public sector undertakings; (c) developing the social infrastructure; and (d) voluntary retirement schemes. Two years and nine reports later, the Commission suggested that the entire disinvestment process be delinked from the Budget. The Reserve Bank of India had earlier suggested that the proceeds of disinvestment be used to bring down public debt.

In his Budget speech delivered on February 27, 1999, the then Finance Minister, Mr Yashwant Sinha, said he hoped to raise Rs 10,000 crore during 1999-2000 through disinvestment. "This will help the government... fund the requirements of social and infrastructure sectors," he said. It was, of course, a separate matter altogether that the actual amount raised that year from disinvestment was under Rs 1,600 crore.

Three years later, once again during his Budget speech, Mr Sinha remarked that he was "emboldened" to take credit for Rs 12,000 crore as receipts from disinvestment during 2001-02.

This time round he was more specific. He said that Rs 7,000 crore would be used to provide "restructuring assistance to PSUs, (a) safety net to workers and reduction of (the public) debt burden" while the remaining Rs 5,000 crore would be "used to provide additional budgetary support to the Plan primarily in the social and infrastructure sectors." Mr Sinha added that the additional allocation for the Plan would "be contingent upon realisation of the anticipated receipts."

Once again, the anticipated receipts did not materialise — the actual receipts were under Rs 3,700 crore that year. Ever since the Union government began disinvesting shares of PSUs held by it, from 1991-92 onwards, in all but three years (1991-92, 1994-95 and 1998-99) the actual proceeds have been substantially lower than the budgetary targets. For instance, in 2001-02, against the Budget target of Rs 12,000 crore, receipts were Rs 3,645 crore. During the two earlier years, the position was much worse. During 1999-2000 and 2000-01, the targets were set at Rs 10,000 crore in both years but receipts were Rs 1,584 crore and Rs 1,868 crore respectively.

The 2003-04 Budget target for proceeds of disinvestment is Rs 13,200 crore. Till November 30, 2003, the amount actually realised was Rs 1,335 crore.

The Government intends raising more than Rs 14,000 crore in the coming weeks by public offers of shares of six PSUs, CMC (formerly Computer Maintenance Corporation), IPCL (Indian Petrochemicals Corporation Limited), IBP (earlier Indo-Burma Petroleum, now controlled by Indian Oil Corporation), Dredging Corporation of India, the Oil and Natural Gas Corporation and GAIL (formerly Gas Authority of India Limited).

The total amount raised by the government through sale of equity shares of PSUs since 1992 when the disinvestment process began is currently in the region of Rs 30,000 crore. Despite the pious statements of intent issued by successive finance ministers that have been detailed, this entire sum (representing the proceeds of the sale of assets that used to belong to the people of this country) has disappeared into a big black hole called the Consolidated Fund of India. The story will be repeated this financial year as well so that the Finance Minister's glowing fiscal deficit numbers do not get tarnished.

As Mr Ramakrishna has pointed out time and again, the proceeds of disinvestment could have been used to build more than four million houses and one million schools. Even after that, the government would still have been left with enough money to voluntarily retire surplus employees of PSUs. (The same amount, on the other hand, would have reduced the government's fiscal deficit by a negligible 0.02 per cent, he has calculated.)

If indeed the proceeds of disinvestment were used for socially useful purposes instead of bridging the budget deficit, the government could have built goodwill for itself among voters. It could then have justifiably pointed out that the beneficiaries of its disinvestment programme were ordinary people.

Instead, the Government's policies of privatisation have been perceived as a means through which precious family silver has been sold to pay the butler — to use British Labour leader Mr Jim Callaghan's colourful analogy while speaking against Mrs Margaret Thatcher.

Most people would agree that if heirlooms have to be hawked, the funds thus raised should be used to pay for the daughter's education or to build an extra room in the house and certainly not to settle the monthly grocery bill or the salary of the domestic help.

Having used the proceeds of privatisation to pay for the profligacy of politicians and bureaucrats, the Government has curiously forgotten to highlight the fact that it has finally decided to set up a Disinvestment Proceeds Fund, even if the decision has come rather late in the day.

(The author is Director, School of Convergence, International Management Institute, New Delhi and a journalist with over 26 years of experience in various media — print, Internet, radio and television.)

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