Govt may defer stake sale fund

Facing a fiscal deficit of 6.8 per cent of Gross Domestic Product for the current financial year, the government is likely to delay for a year or two the National Investment Fund (NIF), a move that will enable it to keep disinvestment proceeds in the Consolidated Fund of India (CFI).

The NIF was created in 2005, mainly under pressure from Left parties, then allies of the previous United Progressive Alliance (UPA), which had objected to using disinvestment proceeds to bridge the fiscal deficit.

75 per cent of NIF’s annual income is earmarked to finance selected social sector schemes and the rest for capital investment in profitable and revivable central public sector undertakings.

The fund became operational only in 2007 and UTI Asset Management Company Limited, SBI Funds Management Company (Private) Limited and Jeevan Bima Sahayog Asset Management Company Limited were designated fund managers.

The proposal to defer the NIF was being considered instead of a more extreme suggestion that it be disbanded,  a senior finance ministry official told Business Standard. The diluted proposal, however, is facing some opposition.  “The proposal has been sent to the Cabinet but a decision has been deferred twice,” said an official.

The issue, part of a larger discussion on the disinvestment roadmap, did not come up for discussion during Thursday's Cabinet meeting.

Pending Cabinet approval of NIF's deferment, proceeds from the recent disinvestment in two public sector undertakings, Oil India Ltd and National Hydroelectric Power Corporation Ltd, will flow into the fund.

The two companies together gave the government around Rs 4,200 crore as its share of sale of equity.

Going forward, the government is expected to accelerate its disinvestment agenda, so deferring NIF could boost government finances significantly. “About half-a-dozen companies may go in for stake sale in the current financial year,” said an official adding that so far revised estimates for disinvestment has not been worked out. The Budget presented in July had estimated Rs 1,120-crore revenue from the sale of government equity in public sector undertakings. The figure has already been crossed with OIL alone giving Rs 2,200 crore to the government.

In the first phase, the government is expected to offload equity in companies that have less than 10 per cent floating equity. These companies will also be allowed to raise fresh equity.

Among the companies that are being considered for disinvestment are Rural Electrification Corporation, State Trading Corporation, Bharat Sanchar Nigam, Coal India Ltd, Engineers India Ltd and National Mineral Development Corporation.