Moving on disinvestment

Govt wise to get early approval for stake sales

It is wise for the Centre to start the ball rolling on the disinvestment process early in the financial year. A report in this newspaper states that the Cabinet Committee on Economic Affairs (CCEA) – which is headed by the prime minister – has already given an approval to the department of disinvestment under the finance ministry for the sale of stake in about 20 companies. At current prices, the approvals would allow for receipts of around Rs 50,000 crore. There have also been reports that some unlisted companies might have stakes put on the market; and the finance minister has also indicated that “strategic sales” – which is generally assumed to be the code for privatisation – might be on the anvil, especially of government-controlled entities in the tourism sector.

It is necessary to move as early as possible. The government has budgeted for Rs 69,500 crore of receipts from disinvestment and strategic sales this financial year. If this is not to put too much a strain on the pool of available capital, it will have to be spread out across the year. In general, the Centre’s record on matching its disinvestment targets have been poor. This was the case for most years under the United Progressive Alliance and also last year, the first of the National Democratic Alliance. There are many reasons for this. One is a general obsession with selling at the top of the market — selling off national assets at anything less than the best possible price is the kind of thing that causes bureaucrats and politicians to be extremely worried. But there are major negatives to this fear — it means that the finance ministry tends to wait for the stock markets to look good enough to satisfy them, and that may not happen in the time frame set aside. The government cannot make that mistake again.

In any case, there is every reason to hope that with this pro-active action, a pipeline of disinvestment can be set in motion that continues across various financial years. This will provide stability to the markets and allow investors to plan. Markets are thin, and the government should expect its disinvestment plans to drive the markets, rather than vice versa. In particular, primary stake sales, if priced attractively, might catch the fancy of the domestic investors who have largely been missing for the past few years. But there are important additional steps to be taken. For one, the government has to make sure that the assets it is putting on the block will be valued properly by investors. This will only happen if it also commits to ensuring that the corporatisation and professionalisation of the companies in question are stepped up.