Govt considers rehaul of divestment proceeds

The government is considering a complete re-orientation of the disinvestment proceeds management mechanism, by turning the Department of Disinvestment (DoD) into a department for government equity and investment management, on the lines of the proposed Department of Government Debt Management.

DoD has suggested this and it is being discussed at the top level of the government. The role is visualised as a holding company or trust on behalf of the government.

The proposal also seeks to completely change the system of utilisation of money garnered through government stake sale in public sector companies. Under the new plan, disinvestment proceeds will remain in a specially assigned public account as a specified equity fund, which would be available to the government as ways and means elbow room, allowing the government borrowing to reduce to that extent.

NIF RE-HAUL PLAN

• Disinvestment proceeds to go to three separate funds
• Funds to be available for use as ways and means
• First fund to subscribe to fresh public sector equity
• Second fund for acquiring energy assets abroad
• Interest from third fund’s  corpus to be used for reviving PSEs and creating infrastructure in specified areas

The public account, at the beginning of the financial year, would be credited the highest interest rate on the government borrowing in the previous year.

The National Investment Fund (NIF) through which the disinvestment money is currently being routed into various social sector schemes since 2010-11, would be turned into the proposed equity fund. This fund will then be segregated into three, keeping in mind specified objectives of the government.

A third of the proceeds would go to the public account under the head of equity fund number one. If required, this will used to subscribe to equity of public sector companies in case of a necessity to raise funds through equity for expansion through a rights issue or if the government equity in a company was likely to fall below 51 per cent. The amount credited in the fund with the interest accrued would be available to the government as a ways and means window.

The second equity fund under the public account with one-third of the disinvestment proceeds and the interest accrued, created in a similar way, would be utilised either for securing energy and raw materials assets abroad by public sector companies or available to the government as ways and means as in the case of the first equity fund. This will add to the sovereign fund planned for this purpose by the Planning Commission and currently being discussed by the economic affairs department.

The third equity fund under the plan would be credited with the remaining third of the disinvestment money. The disinvestment proceeds coming to this fund would be kept as corpus and the interest income would be invested for meeting specified objectives, including meeting the capital investment requirement of profitable and revivable public sector companies.

The interest amount accruing to the third fund could also be utilised for public-private partnership projects for providing vocational training facilities in the northeast, Jammu and Kashmir and Naxal-affected areas, and in funding critical infrastructure projects like railway bridges for small and medium towns.

The government in the current year’s budget has taken Parliament’s approval for routing of NIF money to social sector schemes directly in the current financial year and the new plan is expected to be concretised in due course for implementation from 2013-14.