It was the sad state of affairs in the stock markets that led to a disinvestment fiasco last year. Against a disinvestment target of Rs 400 bn, the Government had to make peace with just Rs 140 bn. And the shortfall was well reflected in the fiscal deficit at 5.8% of GDP, against an estimate of 4.6%.
With subdued sentiments governing the markets, the situation is no better this year. So far, the Government has not opened its disinvestment account. And that is when the disinvestment target for the fiscal stands at Rs 300 bn. With just 7 more months for current fiscal year to be over, waiting is no more an option. The finance minister has directed speeding up the disinvestment process. The lack of economic reforms has to be made up for by taking the disinvestment plunge regardless of how the markets behave. That is the only easy way to compensate outflow due to food, fuel and fertilizer subsidies.
While a hurried up disinvestment process may help the Government save face at the end of the fiscal year, it certainly won't be helping PSUs. Even if an offer is made, investors are unlikely to take the bait unless reforms are undertaken and these firms are made competitive. Or unless the pricing is attractive which will mean lesser funds for Government and value erosion for PSUs. But as the Government runs out of time, with a target to rein in fiscal deficit to 5.1% of GDP, it probably cannot afford to wait for the ideal time now. Moreover, assuming that the disinvestment process is successful, the government cannot rely entirely on it to plug the fiscal gap. Indeed, from a longer term perspectives, efforts have to be directed towards cutting down wasteful expenditure including subsidies.