The Centre after its recent budget will offer funds equivalent to disinvestment receipts raised by states for disinvestment in non strategic PSUs. This will be done to incentivize states to pursue stake sales in state-owned enterprises.
A senior government official stated “We are working out the incentives… We could match up the disinvestment receipts raised by them,”.
The official stated that the incentives are to be out as soon as possible and the incentives would be finalized soon after the passage of the budget by Parliament. Finance minister Nirmala Sitharaman in her budget speech had maintained that the Centre would incentivize disinvestment by states. This will help the government to finance its fiscal deficit and bring more efficiency in the PSUs with privatization.
Finance minister, Nirmala Sitharaman on February 1 had also stated “To similarly incentivize states to take to disinvestment of their public sector companies, we will work out an incentive package of central funds for states,”.
The Centre’s approach of linking reforms by states to additional borrowing will yield good results. This has led to as many as 12 states to implement ease of doing business reforms to avail of the additional borrowing window. Centre emphatically also maintains the view that this could work smoothly with disinvestment as well. Centre also has included privatization of 2 PSUs and one insurance company (LIC) in its budget for the FY 2020-21.
The government has identified privatization as a key focus area for this fiscal year. The new public sector policy will be setting out four areas as strategic where a bare minimum of central public sector enterprises will be maintained and other non-strategic PSUs will be offered for disinvestment.
In the remaining sectors, all CPSEs will be privatized.
There has been raging anger and criticism from certain sections who maintain that government is committed to sell public assets to avaricious industrialists. But, with the sorry condition of the PSUs, government cannot be blamed to disinvest.
With soaring NPAs and government’s recapitalization policy leads to larger fiscal deficit. with 6.8% deficit projected for the year and 20,000 crores of capitalization, government needs funding for its capital formation and infrastructure funding. Thus, at the current moment disinvestment of non -profitable and non-strategic PSUs seems the only plausible way out.