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NTPC assets on the block?

Nov 13, 1999

According to newspaper reports, the government is planning to sell National Thermal Power Corporation (NTPC) plants to raise funds to bridge the burgeoning deficit at the centre. The central government has pegged the fiscal deficit at 4% of GDP (5.2% under previous accounting methods) for the fiscal year 2000. However, a shortfall in tax mobilisations (the government had been optimistic at the time of setting the targets) and unexpected expenditure on account of the war at Kargil has led to a sharp deterioration in the fiscal position. The government has also taken a credit of Rs 100 bn to be realised from the sell off of holdings in public sector units. With more than half the year already gone the government has yet to make a significant start under this head. The result has been a burgeoning fiscal deficit.

The decision to sell off some plants and transmission lines seems a desperate move and highlights the plight of the central government. However, given the circumstances the move may be justified on the grounds that the process will be quick and will avoid delays due to political and legal hurdles.

This is however not a long-term solution. The government, which recently postponed the divestment of holding in Mahanagar Telephone Nigam Limited, needs to rework its strategy. A sell off of assets will not rid the government of excess staff and inefficient (maybe loss making) units. The government needs to divest strategic stakes in these companies, and over a period of time, privatise them. This will raise the much needed resources and also rid the government of excess manpower, inefficient capacities and loss making units.

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