DISINVESTMENT OF PSU
The mounting fiscal deficit is alarming the Government. Economists find fault with the balooning deficit which they believe is primarily due to subsidies, and demand a hard look on the sustainability of subsidies. Some of them argue that PSU divestment could be the way to mop up resources. If you sell an economic asset, it will be meaningful if you can build some other asset. If this money is used to bridge the deficit, there is no economic sense.
subsidies are part of a welfare state's budget. You can not do away with them. Food subsidies are meant to make food available to those who are vulnerable. The PDS which is the primary source of supply of food grains to those below poverty line is so corrupt that subsidies are also targeted to fund their inefficiencies. Some statistics in Business today said that the carrying cost per tonne of wheat in FCI yards is a staggering INR 2000 /MT. The government has banned the entry of private players in food grain procurement to arrest the price rise in the open market. But this has had a negative impact. Instead of supplying subsidised food grains, in order to make the system effective, one could try food coupons for deserving families ensuring direct transfer of money to the beneficiaries
The fertiliser subsidy is calculated on an archaic basis called retention pricing. the government has a pricing formula ensuring 12% post tax return on investment for fertiliser plants. the price difference between the retention price and the target price to the user is paid as subsidy. This breeds inefficiency. Instead again such subsidies may be given to farmers directly from the budget to facilitate them buy the fertiliser at market determined prices.
It is argued that 5% stake sale in PSU over a period of time fetched close to 50000 Crores. that was when stock markets were down. In a revived stock market, this could fetch 10 times as much. this is too simplistic a view. One should remember that bears brought down the valuation of PSU Gas Authority of india such that it had to defer their IPO more than three times. NTPC stock was sold at Rs. 55 for a face value of Rs.10 when TCS was sold at 1000 for a face value of Re. 1 One should again remember that the proceeds of TCS IPO was used by Ratan Tata to increase his holdings in Tata group Companies, NTPC issue was used to add capacities to thermal power generation.Even if for argument sake, this much money could be mopped up, that should be used to improve infrastructure and not used for bridging deficits.
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