Using disinvestment fund to bridge fiscal deficit a Cabinet nod away

Channeling disinvestment proceeds away from the National Investment Fund (NIF) would only require a Cabinet approval, not any amendment to an existing law, said two senior government officials.

This will make it easier for the government to use the disinvestment money to bridge the widening fiscal deficit. The government is considering a proposal to use money raised from selling equity stake in state-owned firms to meet its increased spending programme.

“There is no need for any amendment. A mere Cabinet decision is enough to use the disinvestment money to meet government expenditure,” said a government official.

The fund, which was created through a Cabinet decision in 2005, receives all disinvestment proceeds and the corpus is managed by three state-owned fund managers — UTI Asset Management Company Pvt Ltd, SBI Funds Management Pvt Ltd, and LIC Mutual Fund Asset Management.

At present, the corpus of the fund is Rs 1,814.45 crore. Income earned by NIF has crossed the “three-digit” mark, said the same official, who declined to disclose the exact amount.

The net asset value of the NIF was not impacted much with the fall in stock market valuation since September last year, as nearly 70 per cent of the fund was invested in debt instruments.

According to the constitution of NIF, 75 per cent of annual income will be used to finance selected social sector schemes. The rest will be used to meet the capital investment requirements of profitable and revivable state-run firms.

The Department of Disinvestment, which functions within the finance ministry, has not prepared a list of government firms that can tap the market. “We are waiting for the new government to take a policy decision on this issue (disinvestment),” an official said, adding that a fresh list can be prepared within few weeks time.

Even if the government takes a decision to go ahead with disinvestment in select public sector enterprises, the official said it would take a minimum of six to eight months to complete the stake sale.

Appointing a lead banker, updating the accounts, filing red herring prospectus with market regulator for approval, organising road shows and public offer would mean that money will come into government hands only in the first quarter of next fiscal, a source said.