As the Indian republic turns 60, the United Progressive Alliance government has finally got the mandate to sell off bits and pieces of the business the State has come to own since Independence. UPA II has lost little time in unlocking a significant revenue stream over the next five years to fund its ambitious social security agenda. The 13th Finance Commission has valued public undertakings in India at $300-400 billion, while independent estimates, although less optimistic, reckon their combined worth at around $150 billion. The equity market seems to have an appetite for a pipeline of issues by the 60-odd State-owned companies that make the cut for stake sales and this could help bridge a fiscal deficit nudging 7 per cent of the gross domestic product.
The exchequer is well on its way to generating Rs 30,000 crore this year through minority stake sales in National Hydroelectric Power Corporation, Oil India, National Thermal Power Corporation, Rural Electrification Corporation, National Mineral Development Corporation and Satluj Jal Vidyut Nigam. But the serious money will roll in next year when the big guns — Coal India, Bharat Sanchar Nigam and Steel Authority of India — are put on the block. Initially, the sell-off proceeds will be re-routed into the Consolidated Fund of India to get the fisc back into shape. The logic being that budgetary support to public enterprises shows up as expenditure in the government’s books. Again, as a one-off, increasing the floating stock of the profitable State-owned companies will lower their demands on the Centre for capital expenditure. Steel Authority of India, for instance, is in line for a follow-on issue because it needs to raise its capacity by 60 per cent over the next two years.
Purists might argue the disinvestment being undertaken is faux privatisation — the managerial efficiencies built into the latter do not obtain in the former. But public enterprises stand to gain from even minority stake sales. Listing requires quarterly disclosure, a more accountable way of doing business than the annual statements presented by these companies to their single shareholder. The tighter scrutiny of market players, both local and global, imposes a higher discipline in boardrooms and makes political interference a shade less pervasive. Tied to a move to have more floating stock from private as well as State-owned companies, disinvestment dons an impervious market-reform halo. More floating stock makes for deeper capital markets and the government is leading India Inc by example to spread the gains of rapid growth to a wider section of society.