The Government’s Latest Attempt to Address Disinvestment & Fiscal
Deficit Targets
By PradyutHande
Disinvestment has always been an
“elusive target” as successive Governments have struggled to formulate a
balanced strategy mix to accomplish the same over a protracted period of time.
However, with the Government admitting that achieving the fiscal deficit
objective of 4.6% of the GDP for the year ending March, 2012, would be a tough
proposition; disinvestment assumes even greater significance. As crude oil
prices continue to hover at astronomic levels, the Government’s endeavour to
achieve its fiscal deficit targets becomes even harder. Target projections by
the Centre in recent months have gone woefully awry, as the economy continues
to feel the “ripple effects” of the global economic slowdown and fl
uctuating
commodity prices. While projections may have gone haywire owing to market
vagaries and extraneous caprice, the Government cannot deny the fact that it
has displayed a veritable degree of laxity as far as meeting its disinvestment
targets this year is concerned. Having only managed to raise Rs. 1,145 crores
from disinvestment, out of an eventual target of Rs. 40,000 crores, the
Government has finally decided to up the ante and adopt a different tack in
their attempt to get closer to their initial targets. It is considering open auctions
of small portions of its stake it holds in Public Sector Undertakings (PSUs),
instead of going in for shares sales through public offers.
uctuating
commodity prices. While projections may have gone haywire owing to market
vagaries and extraneous caprice, the Government cannot deny the fact that it
has displayed a veritable degree of laxity as far as meeting its disinvestment
targets this year is concerned. Having only managed to raise Rs. 1,145 crores
from disinvestment, out of an eventual target of Rs. 40,000 crores, the
Government has finally decided to up the ante and adopt a different tack in
their attempt to get closer to their initial targets. It is considering open auctions
of small portions of its stake it holds in Public Sector Undertakings (PSUs),
instead of going in for shares sales through public offers.
On the face of it, the Government’s
newly drawn up strategy appears good on paper. However, it runs into a major
stumbling block as it goes against the laid down stipulations in the
Disinvestment Policy to begin with. The Policy does not allow for such a method
to be undertaken. Hence, in order to circumvent the hindrance posed by the
limitations of the present Disinvestment Policy, the Finance Ministry would
have to obtain approval from the Cabinet before going ahead with its ambitious
plans. This also underscores the need to incorporate changes to the current
Policy to account for a market in flux and radical policy implementation
strategies. However, obtaining the Cabinet’s approval before actually putting
its plans in place promises to waste precious time…time that the Government
cannot afford if it is to gainfully work towards achieving its deficit targets.
A failure to effectively meet fiscal
deficit targets is guaranteed to have certain adverse effects on the economic
spectrum per se. The Government had recently announced that it would borrow Rs.
52,800 crores more than its budgeted projections in the second half of this
fiscal year. It vehemently promised that the excess borrowing would not
adversely impact the fiscal deficit. However, not meeting its deficit goal may
actually entail the Government exceeding the revised budgetary borrowing.
Analysts have pegged the fiscal deficit to end up at about 5.3% of the GDP and
believe that if the Government significantly overshoots its borrowing in the
latter half of the fiscal year, it would have a negative impact on the
fluctuating bond market. Apart from a plausible shortfall in achieving its
disinvestment targets; lower tax revenue collections and higher fuel subsidies
also promise to collectively increase the fiscal deficit levels by the end of
the fiscal year. The “fiscally challenged” Government certainly has its work
cut out and ought now to channel its efforts and resources effectively in order
to improve economic performance in the remainder of the fiscal year.
Pradyut Hande
The Writer is presently pursuing his Bachelors in Business Administration at NMIMS, Mumbai. He attempts to address myriad issues of both domestic and global consequence, ranging from Business and Economics to Geopolitics...from Sports to Arts and Culture. He is also a keen Debater, Munner, Quizzer, Painter and Amateur Freestyle Rapper.
The Writer is presently pursuing his Bachelors in Business Administration at NMIMS, Mumbai. He attempts to address myriad issues of both domestic and global consequence, ranging from Business and Economics to Geopolitics...from Sports to Arts and Culture. He is also a keen Debater, Munner, Quizzer, Painter and Amateur Freestyle Rapper.
