Sep 17, 2003|
Economy: Disinvestment not the real concern...
After a sharp fall of 240 points in just 3 trading sessions, the markets bounced back smartly yesterday with gains of almost 80 points. However, the biggest news yesterday was the Supreme Court verdict over the divestment issue, which has come as a major setback to the government's entire divestment process.
The Supreme Court has stayed the divestment of Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) stating that Parliament's approval is needed before the companies could be divested. It has also asked the government to stop the due diligence process in case of HPCL. It must be noted here that the litigation was filed against the divestment process on the grounds that since these divestment candidates were nationalized post an approval from the Parliament, the divestment of the same should be done after a similar procedure.
Prior to this Supreme Court order on divestment, another divestment candidate, National Fertilisers (NFL), had also met with a similar fate on the bourses, as is evident in the chart above. The divestment of this company has been postponed for 2 years as the bids received for the stake sale were below the reserve price set by the government. However, whatever be the reason, these are not good signs for the government's divestment process.
Moreover, it is not only the investors who stand to lose due to the stock price volatilities, but the government's credibility with regards to divestment also is at stake. Also, the brunt of these cancellations or postponements of divestments will ultimately reflect on the financial statements of the government!
For the year 2003-04, the government has estimated a fiscal deficit of 5.6%. However, it must be noted here that this was arrived at after considering a receipt of Rs 132 bn from divestment proceeds and a chunk of this receipt (approx. Rs 100 bn) was expected to be garnered from the divestment of the two oil-majors, HPCL and BPCL, and Shipping Corporation of India (SCI). But now, with the Supreme Court staying the divestment process of HPCL, the whole divestment process seems to be in jeopardy or at least will be slowed down considerably.
It may have not been wise on the part of the government to factor divestment receipts in the fiscal deficit targets. This is because disinvestment is a very sensitive topic and there may be a lot of hurdles that will have to be faced to carry out the same. Rather than focusing too much on the revenues side of the deficit, the government needs to concentrate on the burgeoning costs that it incurs to run the economy. Costs like subsidies that have proved to be unproductive over the years. The government is also guilty of not being able to control its revenue expenditure.
One must understand that failure to meet disinvestment targets in the past is not the primary reason for fiscal deficit. Hence, failure on the disinvestment front should not take away ones attention from real concerns regarding the fiscal situation in the country, i.e. government expenditure and slow progress on the tax reforms front.
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