The Telegraph
Since 1st March, 1999
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Budget to remain silent on divestment target

New Delhi, Feb. 20: The government will not fix any disinvestment target in the coming budget as the money from selloff will no longer go to the Consolidated Fund of India but rather to a disinvestment proceeds fund, which will be set up under the ministry of finance.

The finance minister has also decided to announce in his budget speech the formation of an asset management company which will hold the rump shares of all PSUs that have been privatised.

There are two schools of thought within the Cabinet about the disinvestment proceeds fund to be announced in the budget. One group, backed by deputy Prime Minister L. K. Advani, wants all disinvestment proceeds to be parked in the fund. The other group wants half to 75 per cent of the proceeds to be parked in the fund while the rest to be kept in the Consolidated Fund of India.

The fund will be used to “finance fresh employment opportunities and investment besides retiring of public debt”. The asset management company will be controlled like the disinvestment fund by the finance ministry and not by the disinvestment ministry. However, in theory, it will be an independent organisation managed by professionals who will interfere in the management of the privatised companies only if the government’s equity value is being hurt in any manner.

Last year, the government had set a target of realising Rs 12,000 crore from disinvestment proceeds but managed to gather just over Rs 3,340 crore. This is not the first time that the divestment target has not been realised. The government has in the last few years never been able to meet the target at all.

Worries about the loss of face from this lack of realisation of targets as well as the structural problem of disinvestment being taken away from the consolidated fund and placed in a dedicated fund (which has no reflection in the government’s normal account) has prompted North Block to desist from setting any target.

The BJP government is also aware that the stated disinvestment target of Rs 16,000 crore in the approach paper to the Tenth Plan had raised hackles across the political spectrum with opposition parties and BJP MPs making common cause on the issue.

The disinvestment ministry itself feels that it can achieve this Tenth Plan-dictated unstated target at least in year 2003-04 by conducting several strategic selloffs.

The sale proceeds from the divestment of government’s stake in HPCL, BPCL, Maruti Udyog Ltd and National Fertiliser Ltd, which were cleared recently, will go into next fiscal’s balance sheet. Besides these, there are 45 PSUs where an in-principle decision has been taken either by the Cabinet or the core group of secretaries. Most of these are expected to be sold in the coming fiscal.

Sources said these included Shipping Corporation of India where it plans to bring down its holding to below 26 per cent, Indian Control Valves Ltd where it will sell 51 per cent stake to a strategic buyer, 32.6 per cent stake through strategic sale in Hindustan Organics Ltd, as well as selloffs in Nepa, Central Inland Waterways Ltd and Chefair, a unit of Hotel Corporation of India.

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