The government has done well to open up a new window of opportunity for the disinvestment programme. | |
| By agreeing to place all disinvestment proceeds in a special fund that will be used for the revival of public sector enterprises and for social spending programmes, the government has met a long-standing demand (most recently voiced by the Left) without in practice conceding much real ground. |
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| This is because the restructuring and social spending programmes are already on the anvil, and whether these are funded out of the Budget or through a special fund is a matter of detail and of no economic significance. |
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| In the process, though, the government has tackled the Left on the disinvestment issue, and apparently (though one never knows with the Left) got them to agree on what has so far been a bone of contention. |
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| This could mean new momentum for disinvestment. It is not clear whether strategic sales are still ruled out, and hopefully this issue too can be re-visited if it is shown that such sales deliver better valuations, and if the companies involved have no strategic value. |
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| The implications for the Budget could be that the disinvestment proceeds will no longer show up under capital receipts. If they do, there will have to be a contra entry under capital disbursements to the fund. |
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| If the existing revenue expenditure for the selected programmes gets transferred to the fund, the finance minister may even have the joy of being able to show a reduction in the revenue deficit through these accounting changes! |
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| In reality though, nothing may change""unless the Left wizens up and demands that the spending through the new fund should be a net additionality, and not a substitute for existing programmes. |
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| The stock market has reacted with renewed bullish fervour, and the optimism was underwritten by the decision on Friday to ask privately managed provident funds to invest specified percentages of their additional inflows in equities and in mutual funds. |
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| It is not clear how much more money will flow into the stock market as a consequence, nor is it clear whether these private provident funds now have the freedom to invest in these areas, or are mandated to do so up to the specified percentages, since newspaper reports differ on the subject. |
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| One must hope that fund managers will have the freedom to deploy their funds as they see best, without government diktat on where they should invest how much. |
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| The last thing one wants is long-term investments be stuck in stock markets even as share prices dip in a bear phase. |
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| The other spin-off benefit of getting domestic long-term funds into the stock market is that this will then be less dominated by the foreign institutional investors. |
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| The public sector financial institutions (including UTI) used to be the countervailing force, but the FIs have become banks and UTI is not what it used to be. The only significant domestic player in recent times has been the Life Insurance Corporation, and it desperately needs company. |
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