Thursday, February 11, 2010
INVESTING IN THE POLICY OF DISINVESTMENT- Prof.K.Nageshwar
The economic survey for the year 2008-2009 presented to the parliament on the eve of the union Budget 2009-2010 proposed to raise Rs.25,000 crores through the disinvestment of the central public sector units. The programme of disinvestment has been put on hold due to strident opposition from the Left whose support was indispensable for the survival of the then UPA government. In the absence of any such ideological resistance from the supporting parties or the constituents of the ruling front , the central government has made its intensions clear in this economic survey. However, the budget was silent on this subject It does not mean that the government has given up the policy of disinvestment . In fact, Prime minister and the Finance minister made it abundantly clear that all these economic reform measures shall follow soon independent of the budgetary proposals.
Now let’s turn to the logic behind the disinvestment as envisaged by the government and as practiced by it. The first argument of the government is that this is only disinvestment and therefore it should not be construed as privatization. There may be semantic difference. But in reality all such disinvestment measures have eventually ended up as privatisation. Take the example of Maruti. It began as Indian public sector. Later, it had a foreign partner. Finally, it became a private company.
In fact it at least makes economic sense if the loss making public sector companies are subjected to disinvestment. Such a move shall reduce the fiscal burden on the government despite other implications. But, the disinvestment of profit making public sector units shall lead to the loss of dividend and taxes. The budget documents reveal that the public sector pays more taxes than the private sector. Sale of assets to meet the daily routine expenditure does not even make wise economics.
The precepts of the disinvestment are often going to finance the ever burgeoning fiscal deficit rather than for any worthwhile expansion of public sector.
The protagonists of disinvestment often argue that huge public expenditure commitments of the government especially in the social sector are to be met. This makes it inevitable for the governments to raise revenues. Instead of imposing burden on people through taxation disinvestment is a better alternative. This seems quite rational if one fails to look at the other side of economic story. The Union Budget 2009-2010 itself revealed that the revenue forgone due to several concessions to the rich and wealthy is Rs. 4.18 lakh crores. The question that should be asked now is should Finance minister collect these taxes at least by removing the concessions doled out to the rich or should he resort to sale of the assets. The growing fiscal defict is not due to increased spending in favour of poor. Infact, it is the result of favours dished out to the rich
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Posted by Prof.K.Nageshwar at 11:17 PM