Flawed Disinvestment ?

The current disinvestment program or the Manmohan’s  second disinvestment program has started out with a big fizzle .

The media always portrayed  MMS as the posterboy of   reform, disinvestment, liberalization, and opening up, thanks to his first spell in the 90s as the FM during the P.V. Narasimha Rao govt.

Most pundits would readily concede that he liberalized the economy … but few will openly say that he did so rather reluctantly, that too with intense IMF and World bank pressure, putting the toughest  decisions on the back burner.

As we all know the NTPC follow-on Issue  has flopped, and had it not been for the intervention of  the big govt FIs like UTI SBI and LIC , the issue would have bombed. NTPC is now hovering close to its offer price of 201 and has closed at  201.75 as on Friday.

The government it seems, has learnt nothing .. they are pricing REC at 203 (floor) and as of Friday its market price is hovering at 214 and going down.  With such a thin margin/difference who would be interested that too close to budget time. Worse, does a finance co that has  low earnings interest people at a higher PE ? Worse no merchant banker is Marketing this issue seriously.

I think this whole fund garnering exercise in the garb of disinvestment is bound to fail and here are the reasons why.

1. There is no liberalization , no reform, no culture or policy shift.Worse the govt is drafting one grandiose money sapping  program after another and using PSUS to fund its subsidy largess.

2. The motive is flawed, and it is purely a fund garnering exercise intended to fill the ever growing deficit hole.

3. The policy gives no incentive to the small retail investor , who has recently lost a lot of money in the big crash. It has become a divestment / public placement of select  PSUs to the Fi Psus , under govt pressure.

4.Fiscal Deficit in overall terms has exceeded the 10% deficit of the 90s and hover around 13% of GDP on a consolidated basis. FIIs are not stupid and have already issued warnings regarding our fiscal deficit problem, next they might vote with their feet.

All in all the govt is  staring at a huge fiscal and revenue deficit problem and if  steps aren’t taken it might soon lead to bigger capital outflows.

As things stand:

1. There is going to be a shortfall on the tax front. The recovery is fragile and the industry doesn’t want the govt to raise excise duty.

2. The 3g licensing is on indefinite  hold.

3. The disinvestment plan is more of a govt bailout by psus such as LIC & SBI.

4. There is rampant food inflation and it has now already spread to the manufacturing sector and the wages of skilled and semi skilled labor.

5. The govt cant push the reform agenda on oil and gas at this moment.

6. The minimum food guarantee act is coming this budget.

7. Short term interest rates are bound to go up and bond yields will firm up both due to govt borrowings and the advance tax season.


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