THE GIST of Editorial for UPSC Exams : 10 February 2020 (Centre’s disinvestment decisions warrant concern (The Hindu))

Centre’s disinvestment decisions warrant concern (The Hindu)

Mains Paper 3: Economy
Prelims level: Disinvestment
Mains level: Major objective of the disinvestment process

Context:

• The Centre has once again set a very ambitious target for funds to be raised through disinvestment in FY21, at ₹2.1 lakh crore.

Aim of the government:

• There is no disputing that the government needs to either exit or reduce its stake in state-owned enterprises over time; private ownership could increase operational efficiency and bring more transparency in their functioning.
• The Centre needs to have a cogent policy, and the divestment decision should be driven by the benefit to the PSE and the public at large, rather than the need to fill gaps in the Centre’s fiscal deficit.
• The budgeted amount of ₹90,000 crore to be raised by selling stakes in public sector banks and other financial institutions, and another ₹1.2 lakh crore through stake sales in other CPSEs.
• This appears unrealistic given that the Centre has been able to raise less than one-third of its budgeted divestment receipts so far this fiscal year.

Disinvestment of the sectors:

• The strategic sales of Air India, CONCOR, BPCL and SCI, that are already on the drawing board, could bring in some funds in FY21 and the initial public offer of insurance giant LIC could rake in a substantial amount, once it goes through.
• The public listing of LIC will, however, be beneficial to both the Centre as well as investors.
• Policy-holders will benefit through the additional disclosures that public listing will entail.
• It will also give investors the opportunity to own a share in the insurance behemoth, that owns close to ₹27.6 lakh crore of assets under management and has almost 11.95 lakh agents on its rolls.
• The Centre will, of course, gain from the large inflow in the form of non-tax receipts.

Reducing the fiscal deficit:

• The Centre needs to weigh the consequences of reducing stake in relatively better-run CPSEs against the resulting fall in its annual revenue from these entities in the form of dividends.
• The budgeted amount for dividends and profits from public sector enterprises for FY21 is 36 per cent higher than the revised estimates for FY20.
• The greater concern is the fact that the Centre’s reliance on the sums raised through disinvestment to bridge its fiscal deficit has increased over the last five years.
• While the amount from stake sales in CPSEs amounted to 8 per cent of the fiscal deficit in FY15, it stands at 26 per cent of the fiscal deficit for FY21.\
• Also, while earlier, stakes in CPSEs were mainly sold through the initial public offer route, the Centre is relying on other routes such as exchange traded funds, sales to employees and to other CPSEs to meet its disinvestment target.

Way forward:

• This struggle to sell government’s stake in a piecemeal manner clearly shows that there aren’t too many buyers for the Centre’s stake in these companies.
• This is not surprising, given the governance risk, poor productivity and inefficient usage of resources by these entities.
• If the Centre wants to realise reasonable value from these sales, it needs to first address these concerns.

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Prelims Questions:

Q.1) Consider the following statements:
1. Montreux Record under the Ramsar Convention is a register of wetland sites on the List of Wetlands of International Importance.
2. Chilika Lake is the only Ramsar site of India to be on the Montreux Record.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both
(d) None

Answer: A
Mains Questions:
Q.1) Do you think the disinvestments can be driven by the benefit to the PSE and the public at large? Critically examine.