Financial Daily from THE HINDU group of publications
Wednesday, Feb 13, 2002
Money & Banking
Columns - Financial Scan
Industry & Economy - Disinvestment
Disinvestment to cut deficit
THE disinvestment rush is on. The Government does not want to be caught holding shares in public enterprises at Budget time, which it had promised to divest long ago.
Budget time is also fudge time. The fiscal deficit has to be somehow brought within the GDP percentage announced in last year's Budget. Hence the urgency to disinvest after 11 months of slumber.
The Government has gone further. It knows only too well that many of the successful bidders in disinvestment are in no position to stump up the cash needed to acquire the disinvested shares. It has been kind enough to ask banks to finance the acquisitions. One must hope that these do not end up as non-performing loans.
For us, cosmetics are more important than reality. Containing the deficit to an arbitrary percentage of GDP seems to have become an end in itself-not, at any rate, as important as finding quick solutions to the real problems facing the economy: industrial recession, unemployment, lack of investment, the state of state finances, et al.
Cutting unproductive and unjustified subsidies a sure way to cut the deficit without harm to the economy has proved to be an elusive goal and has degenerated into turf battles between the finance and administrative ministries. Even where there is no economic or social rationale whatsoever for a subsidy, the Government has found it impossible to excise it. Corporate and personal enrichment go on at public expense.
Subsidies swell the budgets (and importance) of ministries administering their disbursements. They have become sources of patronage and corruption. An unholy alliance of business, politicians and bureaucrats conspires to see that they continue. Expenditure reforms and commissions may come and go, but subsidies go on forever even if they are patently against our economic interest.
The running feud between the finance and petroleum ministries over the administered pricing mechanism (APM) is the latest instance of an administrative ministry fighting to keep a system that has clearly outlived its utility. The APM causes huge losses to Government because the prices realised from consumers are less than the prices paid to refineries for petroleum products. Over the years, it has created an artificial and a complex price control and management system completely out of sync with the international market. After ten years of reforms, we can still argue if administered or market prices are better!
As the Finance Minister rises to present the Budget and triumphantly announce that he has met the fiscal deficit target, we must hope that we will soon address the real issues.
Send this article to Friends by E-Mail
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2002, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line