It is now clear that the Central government’s disinvestment target of Rs 40,000 crore for the year would not be met. With just three months remaining it would be impossible for the government to go through the process. Only 2.9 per cent of the target for the current fiscal has been achieved with the selling of a small stake in Power Finance Corportion. The fiscal deficit is threatening to go up from the budgeted 4.5 per cent to 5.4 per cent. Revenues have taken a hit and expenditure is rising because of various factors like rise in crude prices and depreciation of the rupee. The government has borrowed Rs 93,000 crore in two instalments but things are still not looking comfortable. Poor fiscal management and political problems have largely contributed to the situation.
More than the difficulty posed by the disinvestment process it is the problem of getting expected returns from disinvestment in the present market conditions that has persuaded the government to do without the usual process. A fall in stock prices has made it difficult for companies to raise capital in the market. There were differences in the cabinet over the proposal to buy back shares of public sector companies because their cash balances would be adversely affected. In order to tide over the situation the government has taken the help of the Securities and Exchange Board of India (SEBI) which has created a new Institutional Placement Programme (IPP) so that companies can meet their minimum public shareholding requirement. This is a short cut because it will allow companies to issue shares to institutional investors like banks, insurance companies and mutual funds. Many public sector companies which were on the disinvest radar can raise their public shareholding through this route and the government will be able to meet a part of its disinvestment target.
But the main disadvantage of the scheme is that retail investors will not be able to benefit from it. One important aim of the disinvestment programme was supposed to be an increase in retail participation which will help the public to own the shares of good public sector companies and increase the market’s depth. This will be defeated because retail investors will not be able to directly participate in the new programme. It is also unfortunate that the SEBI has relaxed its rules and tried to help the government with a decision that does not fully protect the interests of investors.