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Govt to dissolve investment fund?

business Updated: Jul 08, 2009 01:00 IST
Highlight Story

The government wants to sell the family silver to pay the grocer.

It is considering a plan to dismantle the National Investment Fund (NIF), which is mandated to finance infrastructure projects from disinvestment proceeds.

Why?

It can then use the funds to reduce the estimated fiscal deficit of 6.8 per cent.

“We feel the NIF needs to be partially or fully dissolved,” said a senior government official on condition of anonymity.

By setting up the NIF in 2005, the government had sought to ensure that the money it received from the sale of shares in public sector units (PSUs) was kept outside the budget and not used to bridge the fiscal deficit.

By dissolving NIF, the government will overturn that decision. It can then use the proceeds of any future disinvestments to bridge its fiscal deficit or for any other purpose.

The United Progressive Alliance government has signalled its intent of selling minority stakes in a few profitable PSUs now that it is no longer dependent on the Left parties for survival.

The government plans to divest these shares through initial public offerings (where the money raised goes to the company) or offers for sale (where the sale proceeds go to the owner, in this case, the government) or a combination of both, without diluting the “public character” of these companies.

“The government is very clear that it will not opt for the strategic sale route (which involves transfer of a controlling stake as well as management to the buyer). We will only sell minority stakes in some PSUs,” the official said.

The much-awaited IPOs of state-run NHPC (formerly known as National Hydro Power Corporation) and Oil India Ltd (OIL) could well mark the resumption of the disinvestment programme that has been mired in a web of politics through UPA-I’s 2004-09 regime. The government expects to generate Rs 3,000-3,500 crore in 2009-10 by offloading equity in these companies, both of which had received all necessary regulatory approvals in September last year.

At present, 44 central PSUs are listed on stock exchanges. Overall, there are 214 operational central PSUs, of which 160 are profit making. And of these, only 99 have a positive net worth.