Introducing the Budget 2020, Indian Finance Minister Nirmala Sitharaman had highlighted that during the financial year 2020-21, contribution of direct and indirect taxes towards government's receipts will remain 64 paise per rupee, borrowings and other liabilities will fetch 20 paise per rupee, excise and customs duty will generate 10 paise per rupee and the share of non-debt capital receipts will stand at 6 paise per rupee. But the coronavirus pandemic and the government's efforts to tame it with a strict lockdown threw all analysis and calculations out of gear.
A recent report (October) released by the CAG reveals that the fiscal deficit of `9.1 lakh crore set by the Union government for the year 2020-21 surpassed its full-year target of `7.96 lakh crore in the first half (April-September 2020) of this year itself. The major cause of this fallout is the reduction in tax receipts vis-a-vis an increase in expenditure. A sternly implemented lockdown relentlessly affected the businessmen and salaried community in terms of sales and resulted in widespread unemployment, thereby reducing the government's tax coffers. A financially constrained government started exercising all the alternatives available with it to curb the deficit.
Receipts from tax sources such as corporate tax, income tax, GST, excise and customs duty will increase only when the recovery will start but the government has already exhausted the option of amassing revenues by increasing the prices on petrol and diesel, besides increasing the volume of fines and penalties on different types of motor vehicle offences. Also, the government has run through the option of increasing the borrowings from the market by elevating its target from `7.8 lakh crore set in the Budget 2020 to `12 lakh crore. In August this year, the RBI Board also approved the transfer of an annual dividend of `57,128 crore to the government. In addition to this, the Union government's expenditure on public services, administration and defence also declined by 10.3% in the first quarter of 2020-21 vis-a-vis the first quarter of the previous financial year. Despite all efforts to weather the storm, the government has ostensibly failed to garner sufficient receipts to meet its financial obligations, the latest example of which is the denial/postponement of arrears of GST compensation to the state governments. To keep the momentum going, the government is now turning towards inexorable disinvestment or privatisation of public sector units under different dimensions.
Accelerating the disinvestment process
In the Union Budget 2020-21, the government had set a disinvestment target of `2.1 lakh crore. It was expected to be realised by selling the stakes of financial institutions - namely Life Insurance Corporation and the IDBI Bank at ` 90000 crore. The remaining `1.2 lakh crore was to be generated through disinvestment in central public sector enterprises (CPSE) like Bharat Petroleum Corporation Ltd (BPCL), Shipping Corporation of India (SCI), Container Corporation of India (CONCOR) and Bharat Earth Movers Limited (BEML) etc. But the declining revenues incited the government to hound for disinvestment under the garb of asset monetisation and buy back the shares to raise additional proceeds.
A panel of secretaries of different ministries was constituted in April 2019 under the chairmanship of the Cabinet Secretary on Asset Monetization. This body held its last meeting in September this year. After deliberating upon the list of assets to be monetised from different CPSEs, it was decided that six airports, Goa’s sea-port and the International Cruise Terminal, 150 passenger trains, 50 railway stations, few highways, power transmission lines, telecom towers of BSNL and MTNL and the Fiber networks of Bharat Broadband Network Ltd. will be considered immediately for asset monetisation. The unique strategy of selling a fraction of the entire unit initially - instead of getting rid of the complete CPSE is hurriedly being pursued by the government to avoid much public outcry.
In addition, the government has also instructed eight public sector units including Coal India Ltd., National Thermal Power Corporation and Engineers India Ltd., to buy back their shares. The practice of buying back the shares is adopted when a company fears stumpy financial proceeds in future, to avoid which it buys shares from existing shareholders at a current higher price, in comparison to the market price, so that its liabilities stand trimmed in the upcoming months. However, the central government has forced even the profitable public units to buy back their shares from the shareholders (government is the biggest investor in such units) at a higher price, so that the government gets an extraordinary dividend, even though it may reflect negatively on the financial health of the companies. On one hand, the government will be able to fill its coffers through dividend and on the other, it will wreck the companies financially and pave way for their auction, thereby off-loading the government from all its liabilities in future. The same was earlier experimented with BSNL that was restrained from participating in the auction of the 4G spectrum. As private telecom companies managed to acquire the 4G spectrum, BSNL became a loss-making entity. In the context of Air India too, it was observed that Air India's planes were deliberately operated either on loss-making routes or at odd times on profitable routes so that ultimately the government could get rid of it. Under the pretext of the pandemic, the central government is hell bent to sell off Air India at a discounted price. Hitherto, the buyer was expected to bear one-third (`23286 crore) of the total debt that stands at `60074 crore, but now even that clause has been relaxed and prospective buyers are being offered a flexibility wherein they can shoulder as much debt as they can manage comfortably.
The Union government is going to complete the disinvestment process of four major public entities - BPCL, SCI, CONCOR and BEML at a cost of `60,000 crore near Diwali. Of course, due to the pandemic, returns being yielded by these units will be well below pre-pandemic levels and yet the government is pushing the disinvestment of these units at any cost. So much so, the government is scheduling the selling of 47% stakes in IDBI Bank soon after the disinvestment of these four units.
Amplified usage of the terms disinvestment and privatisation dates back to the year 1991, when the then government decided to sell stakes in critically sick public sector units to improve their efficiency. Disinvestment trends point out that the NDA government has remained extraordinarily focused towards the sale of public sector entities as compared to their counterparts. Data released by different governments from time to time indicate that from the years 1991-92 to 2019-20, successive governments have earned `4.67 lakh crore from disinvestment, of which stakes of public sector units worth `3.48 lakh crore were sold during the NDA governments only. The remaining `1.19 lakh crore were sold by the Congress led UPA or the United Front governments. Not only this, the achievements in terms of disinvestment during the Modi government are still incredible with stakes worth `3.14 lakh crore or 67% of the total disinvestment taking place from 2014-15 to 2019-20 only.
State-dominated production models pursued by the post-independence governments that had created large public sector projects like Bhakra-Nangal, Chambal and Hirakud dams, Bhilai, Rourkela, and Durgapur steel plants, the Punjab Agricultural University, IIT, IIM, AIIMS, aluminium and copper plants etc. which made India self-sufficient, gave jobs to millions of Indians, and made the Indian health and education sectors globally competitive are being increasingly labelled by the present government as unpaying concerns while they are earning revenue from the sale of some of these units.
The writer is the Associate Professor in DAV Institute of Management, Chandigarh
— The opinion/s expressed in the article are that of the author’s and do not necessarily represent or reflect the policy or position of this magazine