7 PM | State assets sales could play the fiscal saviour | 4th July, 2019

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Context:Disinvestment can be a viable solution to fund for raising public expenditure.

Disinvestment: Since the beginning of 1980s, a large number of public enterprises incurred losses year after year, and it was argued that the state should not be called upon to meet the losses of these enterprises out of tax payer’s money. Consequently government started disinvestment. Disinvestment is the process through which privatization could take place.

Primary objectives of disinvestment:

• Releasing the large number of resources locked up in non-strategic public sector enterprises (PSEs), and redeployment of the resources for social priority areas like health, family welfare, and primary education, social and economic infrastructure.
• Reducing the public debt.

Evolution of disinvestment policy:

• Industrial statement of 24^th july 1991: stated that the government would divest part of its holdings in selected PSEs.
• Rangarajan committee on disinvestment (1993): committee stated that the percentage of equity to be divested could be upto 49% for industries explicitly reserved for the public sector.
• On 16^th march 1999, the government classified PSEs into strategic and non-strategic areas for the purpose of disinvestment.
• Disinvestment policy since November, 2009:
  • Offer for sale for listed profitable CPSEs.
  • Follow-on public orders in respect of profitable CPSEs having 10% or higher public ownership.
  • Disinvestment is to be considered on merits and on a case by case basis.

Need of disinvestment: In the present economic scenario, demand for expenditure is increasing, at the same time the supply of resources is not promising.

• Goods and Service Tax (GST) collections: As per the interim budget, the government revised the GST target from rs.7.44 lakh crore to Rs. 6.44 lakh crore due to short fall in collections. So the standard collections from GST will take time.
• Directtax collection: By march 2019, Central Board of Direct Taxes (CBDT) stated that the tax collection figures have been reviewed and it is seen that as against the budget collection target of Rs. 12 lakh crore, only 85.1% of the target at Rs. 10,21,251 crore.
• Central government notified to extend the benefit of Rs. 6000 per year under the Pradhan Mantri Kisan Sammaan Nidhi (PM-KISAN) to all 14.5 crore farmers irrespective of the size of their land holdings which need Rs. 75,000 crore.
• Borrowings: The net borrowings of government already stands at Rs. 4.7 trillion in Fiscal Year 2019-20, further borrowings will increase the interest rates on government yields, which will have impact on debt market.
• Rising defence expenditure (more than Rs. 3 lakh crore in 2019-20) and increasing health expenditure (Ayushman Bharat Scheme) from Rs. 52,800 crore in 2018-19 to Rs. 61,398 crore in 2019-20.

Performance of disinvestment in recent scenario:

• According to department of investment and public asset management, between 2004-05 to 2013-14, disinvestment raised Rs. 1.07 lakh crore, on an average yearly collection of Rs. 10,700 crore.
• However, from 2014-15 to 2017-18, the collection went up to Rs. 2.12 lakh crore, i.e. yearly collection of Rs. 53,000 crore.
• The government has exceeded the target of Rs. 1 lakh crore in 2017-18 and Rs. 80,000 crore in 2018-19.
• Success of BHARAT-22 Exchange Traded Funds (ETF) takes government closer to disinvestment target. The ETF is benchmark to an index named BHARAT22 consisting of 22 companies (19 PSEs and 3 private).

The collection and performance above shows that the disinvestment is a viable option to raise funds.

Future disinvestment potential:

• Recently cabinet had approved an institutional framework for monetisation of non-core assets of CPSEs under strategic disinvestment. The government should expedite this initiative and realise the disinvestment potential locked in this sector.
• Even though government is committed for sale of Air India, but there are some strings attached to Air India sale. The government should focus on lessening the strings and create a viable option for both the state and purchaser.
• High value assets: There are vast tracts of land in big cities held by government wings such as armed forces (Example, Secunderabad Cantonment area), railways, and in metro-Politian areas. Government should monetise these land assets and use for commercial purpose, which will be an evergreen income resource for government.
• With the success of BHARAT22 ETF, government should promote further disinvestment of PSEs and bring more of them under BHARAT22.

Way Forward:

Disinvestment is present context can provide solution to the raising of funds, but in the long run,  government should focus on raising the resources from tax receipts-direct and indirect taxes and keep a balance between tax resource and disinvestment proceedings to fund the public expenditure.

Source: https://www.livemint.com/opinion/online-views/opinion-state-asset-sales-could-play-the-fiscal-saviour-1562174648371.html