≡ Menu

How not to disinvest | The Indian Express

If the army feels it requires continuation of the AFSPA to discharge its responsibilities, no other agency is qualified to credibly challenge that view. Dont repeat the ONGC mistake,instead steadily sell off PSU shares. Gearing up for the budget,the government attempted to keep the fiscal deficit for the current year under control through ONGC disinvestment. The auction did not go well. The events that unfolded only pointed to inherent weaknesses in the implementation capacity of the government. The ONGC disinvestment process ended up with public sector financial institutions,such as LIC,buying up the bulk of shares on offer. The auction was implemented through an initial change in the auction design,one that seems less transparent than the standard auction,something that would likely not have been allowed for a private company. Later,it was reported that concessions were given by exchanges and the stock market regulator to handle system glitches that arose because of the last-minute load at the time of closing the auction. The disinvestment design also raises issues about the price,which was above the secondary market price and,therefore,enough to turn off most investors. Further,it raises questions about whether public sector financial institutions should have large exposure to public sector enterprises,and what signals such disinvestment gives to international investors and credit-rating agencies who are presumably among the intended targets,looking at disinvestment as a positive signal about the Indian economy. A reduction in fiscal deficit through disinvestment planned at the beginning of the year should have been rolled out throughout the year. The argument that the market did not look good is flawed as it is circular. Sentiments in the market,apart from being influenced by uncertainty in international markets,are strongly influenced by government actions and policies. If the government had steadily sold shares of PSUs through the year,investor confidence would presumably have been higher and if markets had been upbeat about the economy,disinvestment proceeds would have been larger. In terms of ownership and governance of companies,the right path is to slowly and steadily transform PSUs into dispersed shareholding companies. Companies like L&T,ITC and Infosys have no family in charge. There is a dispersed shareholding across a large number of shareholders both local and foreign. The shareholders elect a board of directors and the board recruits the top management team. We can achieve this with PSUs by steadily selling off shares to the public at large. This,however,requires continuous work through the year. The Department of Disinvestment needs to be reorganised so as to efficiently sell shares all the time. It is not difficult to use the exchange pre-opening auction system to sell 0.05 per cent of every PSU every day,so that 12.5 per cent of shareholding is sold off every year. This can be run in a smooth and efficient manner every single day. Once DoD had failed on the disinvestment programme,the right thing for the government to have done,in February,is to admit failure and promise to do better next year. Instead,the finance ministry succumbed to the temptation of using its control of financial regulation and financial firms to try to raise money through disinvestment. From a fiscal point of view,it is hard to see what would be gained in moving shares of ONGC from the Government of India to LIC,which is 100 per cent owned by the government,at a price above the market price. Did the government think credit-rating agencies would be fooled by this dexterity in fiscal jugglery? The government needs to worry that fiscal dexterity raises the sceptre of Greece,which fudged its public accounts. Another proposal is for public-sector banks to lend to SUUTI which will then buy PSU shares. Government owns the banks,SUUTI and PSUs whose shares will be sold. So things will move around from one hand of the government to another. Is this genuine disinvestment? The only sensible course is to sell off everything that SUUTI owns and to close it down. That may bring the results that are desired. The Indian economy is reeling from a wave of pessimism. In a few years,we have gone from universal optimism about India to universal pessimism. The misrule of recent years has persuaded private and foreign investors that Indian governance cannot be trusted. The fracas about disinvestment,and the surrounding damage to institutional quality in the financial system,has done further damage. These events send out a signal to private and foreign investors that economic policy formulation and execution in India is suspect. This will further damage the outlook for investment. It will exacerbate the business cycle downturn,and damage long-run growth potential. In Budget 2012-13,estimates for fiscal deficit are likely to be high. It is also likely then that disinvestment will again be a means through which the government will try to keep the deficit under control. The lesson from ONGC should not be forgotten. The disinvestment programme should be slowly rolled out,in small parcels throughout the year,regardless of market conditions. It is not for the government to try to time the market and then make a rush for it in the weeks before the budget. The government needs to embark on a genuine path of disinvestment rather than merely trying to make it appear that it is doing so. The writer is a professor at the National Institute of Public Finance and Policy,Delhi express@expressindia.com.
Source : Click Here

{ 0 comments… add one }

Leave a Comment