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india Updated: Jul 07, 2006 00:53 IST

ECONOMIST MANMOHAN Singh had pulled out the government's disinvestment plans from cold storage less than a fortnight ago. On Thursday, politician Manmohan Singh found the disinvestment decisions turning red-hot — when the DMK threatened to pull out from the UPA — and shoved them all back into the deep freezer.

"It's a bad day for the country," said a government official as the Left cheered the decision to put disinvestment in profitable state-owned companies like the Neyveli Lignite Corporation, Nalco and the Power Finance Corporation on hold.
Tamil Nadu CM K. Karunanidhi, who triggered the decision with his threat to reconsider continuing in the UPA, called it a victory of "truth and the labour force".

An official statement said the PM had decided to "keep all disinvestment decisions and proposals on hold pending further review" on account of representations from some constituents and allies of the UPA. The announcement came within hours of a meeting between Communications and IT minister Dayanidhi Maran and the PM. Maran passed on the threat message from Karunanidhi.

Earlier in the day, in Chennai, Karunanidhi had held out a thinly veiled threat. "As the Union government is not in a position to accept the demand of the workers, the DMK is thinking whether to continue in the Union government and be a party to the decision," he said.

A senior Congress leader insisted the development should not be "over-interpreted" to imply any kind of reversal of the economic reforms process. He said the NDA government too had had to review some decisions in the face of the compulsions of coalition politics.

The government's decision got an immediate thumbs down from the markets, with the Sensex losing over 152 points. Industry captains too expressed their disapproval, fearing the decision would send wrong signals about the future of reforms.

CII president R. Seshasayee said in a statement: "Since large public investments are required in critical areas like education, health and infrastructure, the government could face major resource constraints, without disinvestments."
If the logjam on disinvestment is not sorted early, the bears are likely to tighten their grip on the capital markets -- especially when FIIs are selling in the market.

Second, the National Investment Fund -- where the disinvestment proceeds are to be deposited -- will be a non-starter. Result: additional funds for the social sector may not be forthcoming from budgetary resources.

Third, the finance minister will find it difficult to get resources to revive loss-making PSUs which can possibly be turned around.

Fourth, the adverse signals for foreign investors and trading partners may take a toll on economic growth.