The Hindu Business Line : Sell-off fund — Will it fall victim to petty politics?

The Government is seriously thinking of setting up a sell-off fund, which will be used partially for strengthening the public sector and for financing social sector programmes. It is hoped that the present decision of the Government would be earnestly implemented, and not become a victim to petty politics. For this, the Government would have to be clear on several issues, says G. Ganesh.

IT IS indeed heartening to learn that the Government is seriously thinking of setting up a sell-off fund, which will be used partially for strengthening the public sector and for financing social sector programmes.

This idea was first expressed by the now disbanded Disinvestment Commission (DC), headed then by Mr G. V. Ramakrishna. Apparently, the nomenclature "investment fund," instead of the commonly accepted "disinvestment fund," is aimed at softening the opposition by the Left Parties, whose continued support is crucial to the survival of the United Progressive Alliance Government. Call it by any name, so long as the objects of the fund are laudable, there should be no problem.

According to the Government decision, all proceeds from disinvestment of PSUs after April 1 will find their way to the new fund. Public sector fund managers will manage it and the returns therefrom would be significantly higher than the dividend-market price ratio of public sector undertakings (PSUs), which is around 2 per cent now.

The Finance Minister has stated that the receipts would be treated as capital receipts and as they are spent, they would be reckoned as revenue expenditure.

In this context, it would be useful to trace the history of the sell-off fund as originally proposed by the then Disinvestment Commission. The Commission had recommended in February 1997 that the proceeds should be separated from the other non-debt capital receipts in the Budget of the Centre to inter alia;

(a) highlight the seriousness of the fiscal and revenue deficits and compel actions to deal with them through appropriate measures such as taxation;

(b) demonstrate that disinvestment would initially take care of employee interests through VRS and other measures;

(d) provide greater public awareness of the justification for disinvestment as a long-term solution to the problems connected with improving efficiency in the use of capital, reducing budgetary drain from loss-making PSUs and persistent shortage of budgetary resources for accelerating growth and alleviating poverty.

The Disinvestment Commission, therefore, recommended that the proceeds should be placed separately in a Disinvestment Fund and not be fungible with other government receipts. The resources in the Disinvestment Fund should be used for temporarily meeting the losses of some PSUs before disinvestment, where required, for a limited period during the process of short-term restructuring or closure; for strengthening marginally loss-making PSUs in preparation for disinvestments; and for providing benefits to workforce found to be surplus during restructuring or closure.

The savings to the Budget on account of such recurring budgetary support to loss-making PSUs could be diverted for investment in sectors such as infrastructure, education and health and retirement of public debt. The Disinvestment Commission also recommended that the Disinvestment Fund should be administered by the Ministry of Finance to facilitate better coordination and smoother administration. In March 1998, the Disinvestment Commission further recommended that a reasonable percentage of the Disinvestment Fund should be earmarked for funding social infrastructure for promoting rapid growth of the economy.

In March 1999, it further recommended that the sell-off fund should also be used to retire public debt. It also stated that the recommendations of the Disinvestment Commission for the creation of the fund and the use of proceeds would help create greater public awareness of the justification for disinvestment and the perception that the sale of assets of PSUs will lead to tangible social benefits. This would induce understanding and support for the disinvestment programme.

The Government had stated in September 1996 itself that it had been decided to set up such a Fund, but that decision was not implemented. The NDA Government also considered the proposal to create such a Fund but the idea did not translate into affirmative action. It is hoped that the present decision of the UPA Government would be earnestly implemented, and not become a victim to petty politics. To implement this decision successfully, the Government would have to be clear on the following issues:

(a) Previous attempts to create such a Fund were opposed on the grounds that all receipts should flow into the Consolidated Fund of India and not be kept aside in separate Funds. However, the creation of the Road Fund led to the mechanism of transfer of equivalent funds from the Consolidated Fund to the Road Fund, while the receipts continued to accrue to the Consolidated Fund. Similar mechanisms should be worked out for the Investment Fund.

(b) The Government should be clear on the proportion of the resources in the Fund that should be set apart for various purposes such as strengthening the public sector, payment of VRS compensation to surplus employees, social infrastructure schemes and retirement of public debt.

(c) Having apportioned the proceeds, the Government will have to ensure that the resources are spent timely and usefully for the given purposes.

(d) The Government's decision also talks of creation of a corpus and spending only the returns fromit. This is likely to be very meagre, given the soft-pedalling of disinvestment process by the Government, thanks to the opposition from the Left parties. There is likely to be no big-ticket privatisation and the extent to which minority shares can be unloaded on the public has limited scope.

The Government could alternatively consider utilising the entire proceeds of disinvestment in various social sectors such as health and in strengthening viable PSUs and, thereby, have something to demonstrate the effectiveness of such measures. By viable PSUs, one would like to emphasise that only those PSUs should qualify for assistance which have not failed in earlier restructuring attempts.

(e) In case the Government wants to create a corpus, it should be clear about the accountability of the fund managers to ensure that the returns from the corpus would not turn negative, keeping in view the past record of UTI;

(f) It is not clear why the Government wants to treat expenditure from the Fund as revenue expenditure. If it is the Government's intention to create assets in the social sector such as creation of hospitals, dispensaries, buildings for educational institutions, then the expenditures should be categorised as capital expenditure.

Public awareness and support for the disinvestment programme would be forthcoming only if assets are created in the social sector so that in the public perception, selling the assets of the public sector translates into creation of assets in the social sector.

One is left wondering whether the move to categorise expenditure as revenue expenditure would open the door to meet expenditure of a consumption nature. If so, how would this be different from what has been practised by the previous governments?

(g) The Government must report to Parliament on the working of the Fund on an annual basis and there should be a debate in Parliament on the effectiveness of the scheme.

Thus, while the decision of the UPA Government is welcome, its effectiveness and success would depend on how well it is implemented.

(The author, a former IAS officer, was Member-Secretary of the erstwhile Disinvestment Commission.)

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