The Hindu Business Line : Going beyond disinvestment

WITH THE GOVERNMENT announcing the selling price of its stake in ONGC, the current round of disinvestment in select public sector units has for all practical purposes been brought to a successful conclusion. There is bound to be some disagreement — especially with elections ahead — over whether the successful disinvestment is a confirmation of the sense of `feel good' that the Government has been claiming exists in the public mind.

Certainly there are some positives from the latest exercise. For one, the Government has succeeded in mobilising over Rs 15,000 crore — far more than what it did in the last six years. That should help in fiscal consolidation by which the Government had set much store. The substantial overseas institutional investor support is a sort of vote of confidence in the Indian economy. But by far the most significant aspect is the phenomenon of large retail investor support. It should be a source of satisfaction to the Government and the market regulator alike that the offer for sale by the Government ended up attracting investment support in excess of Rs 10,000 crore when investors have generally been lukewarm to corporate issues of capital in recent years. Corporates seeking to access the domestic capital market would do well to note that retail investor support will be available if their businesses have reasonable prospects of profitability and also if the issues are priced reasonably.

The economy is expected to end the year logging 8 per cent-plus growth rate. Even if this had been to some extent boosted by a smart turnaround in the agricultural output thanks to favourable monsoon this year, the manufacturing and services sectors have acquired a momentum of their own and it should, therefore, not be difficult for the economy to record attractive rates of growth in the near term even without any significant contribution from the farm sector. The resultant growth in corporate profitability should keep the investment sentiment buoyant. There would, of course, be short-term gyrations in valuation as is the case now. But there is reason to feel optimistic about the long-term outlook for the market.

The Government that will assume office after the elections has a rare opportunity. It can capitalise on the positive sentiment within both the domestic and overseas investment community and aggressively push the process of disinvestment. The proceeds could be used to take up a programme of fiscal correction for both Central and State finances. Once this is done there would be greater scope for undertaking larger public investments in the social sector that has been neglected in recent years on account of general fiscal stringency. The current enthusiasm for the national highways project or port and rural connectivity can only go up to a point in sustaining growth impulses in the economy. Sooner or later they are going to run up against the phenomenon of fiscal profligacy and thus run the risk of being halted in mid-track. Only in a genuine programme of fiscal consolidation is there salvation for the economy.

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