Next steps on privatisation

Budget detaches the programme from fiscal needs

The Union Budget for 2022-23 differed from that of the previous year in one very important respect. The amount set aside as non-debt capital receipts was considerably lower. In fact, it was less than half the amount budgeted for 2021-22. This is essentially because the previous Budget had estimated that Rs 1.75 trillion would come in from disinvestment receipts, which is not going to be achieved. The Revised Estimates for 2021-22 suggest only Rs 78,000 crore will be raised through this. Thus, the Budget Estimates for 2022-23 have been similarly restricted, with a disinvestment target of only Rs 65,000 crore. While high by historical standards, this is nevertheless a significant decrease in ambition on the part of the government. It had clearly hoped last year that disinvestment receipts would aid it in managing its stringent and constraining fiscal arithmetic. But it appears to now have largely given up on that hope.
 

This decrease in ambition is disheartening, given that the government has just successfully concluded the privatisation of Air India, long a millstone around the exchequer’s neck. Certainly, it had to invest some budgetary support in settling the airline’s debts before it could be successfully sold. But the value of the Air India example was to re-energise the privatisation process. The government still hopes to sell a considerable stake in the Life Insurance Corporation of India in the few months remaining in the financial year; but it seems uncertain as to whether Bharat Petroleum Corporation Ltd, or BPCL, will be similarly sold next year. Either way, it is clear that the arbitrary nature of the disinvestment programme is doing the Budget-making process no favour.

The government must therefore invest some time and energy in ensuring that its plans to monetise and privatise assets is institutionally sound. The National Monetisation Pipeline was seen as a way of approaching this problem. Although it received glowing reviews in the Economic Survey, it does not seem to have inspired confidence in the Budget’s framers. One way to look at it is positive: In that the government, setting relatively conservative targets for disinvestment receipts, has detached the disinvestment programme from the year-to-year requirements of financing the deficit. Now the National Monetisation Pipeline must be provided a secure institutional backbone. It requires a transparent and objective approach in which companies or assets better suited for the private sector are identified, then taken under the wing of a holding company or trust that can put their affairs in order, and invest whatever money and time is required to raise the standards and quality of their internal accounting and other systems.

This will ensure that assets can be brought to the market in a timely manner, that decision-makers are insulated from malicious charges of corruption, and that investors can make their plans well in advance. A side benefit is that the momentary state of the market will no longer be the determining factor when it comes to the speed and size of disinvestment or privatisation in any given year. Reworking the National Monetisation Pipeline in this manner is an urgent priority, and must receive the attention of the highest level of decision-making in the government if the assets are to receive the right valuation and the programme is to proceed in a speedy manner.