The Hindu Business Line : Divesting for development

Governments, even when they do good things, have to protect themselves from attack on various flanks. So, often, they adopt the old maxim that a dog with a bone in its mouth does not bark. The decision to force profit-making public sector enterprises which have not yet divested the required minimum of 10 per cent to divest forthwith, and then use the proceeds to fund the social sector is of a piece with this. With the Left not snapping its heels — though it would hav e surely approved had UPA-I done this — and the Opposition in total disarray, the move could be aimed primarily at the Congress, sections of which are known to take a dim of view of the Washington Consensus.

It has also been decided to change the rule governing the use of disinvestment proceeds. Until now the money used to go into the National Investment Fund (NIF) launched in 2005. It will still go there but only to come out immediately and be used as capital expenditure in social sector schemes suggested by the Planning Commission. It is difficult to be very sanguine about this decision. This is because these programmes are all implemented by the State governments, whose main problem is not an insufficiency of funding but simply the inability or unwillingness to implement. The issue is more about governance and less about funds. It is also surprising that the funds will be dispensed by the Planning Commission. Will it, or can it, ensure delivery of services? The Finance Ministry’s department of expenditure has been given a token role, which will probably consist of guiding the Planning Commission on phasing the expenditure, depending on the revenue flow.

Likewise, the persistent increases in minimum support prices (MSPs) of cereals and other agricultural products since 2005, with a view to reversing the terms of trade in favour of agriculture, have also been aimed, in part, at the farmers’ lobby in the Congress and its allies. Indeed, the latter helped the UPA win the 2009 general election. That said, it should also be noted that such a reversal was long overdue. The persistent decline in the real incomes of farmers since the early 1990s had resulted not just in rural distress but also an alarming lowering of productivity, as also the resultant need for ever-increasing subsidies. Now it must be hoped that the Government will stop increasing the MSPs for some time — there are no elections due for at least 18 months — and start reducing subsidies. Correction works only as long as there isn’t over-correction. Food inflation is already reaching alarming proportions and the Government’s demand and supply management policies are largely to blame for this.

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