NEW DELHI, November 16: Prompted by the obsession to keep the fiscal deficit within target, the government is ignoring the recommendations of the Disinvestment Commission of not resorting to distress sale of the shares of the public sector undertakings. The decision of the government of going ahead with the GDR issue of the Mahanagar Telephone Nigam Ltd (MTNL) in truncated form is manifestation of the state's desperation to garner funds to keep the fiscal deficit low.

The government, it may be recalled, has pulled back the Gas Authority of India Limited (GAIL) Euroissue under the similar circumstances in wake of the crisis in international currency and stock markets. Although the world market has yet to come out of the crisis, the government, to the surprise of many, announced its decision to go ahead with the issue in truncated form. The reduction of the size of the issue, reportedly on the advice of the merchant bankers, was itself an indication that the international market was not ready for Indian issues at present.

The government may be able to sell the GDR issue in the depressed market, but will definitely not get a respectable price. If the hammering of the MTNL scrip in the domestic market is any indication, the government will have to sell the shares at a heavy discount. The desperation of the government to go ahead with the MTNL and thereafter with the Indian Oil Corporation (IOC) GDR issue, is against the wishes of the Disinvestment Commission. Although this was not the first time that the government was consciously ignoring the advice of the Commission, it would prove costly to the exchequer and invite flak from different quarters, especially Parliament. The reason being that the shares once sold cheap are sold for ever.

Commission chief G V Ramakrishna, himself had suggested the the government might resort to borrowings to garner the funds rather than sell the public sector shares in depressed market. His suggestion makes more sense in view of the macro-economic developments which do not call for focused attention on one point obsession of keeping fiscal deficit under target. If the government is very serious about debts, it can always retire the debts from the proceeds of the sale of PSU shares at some latter point of time. Especially at a time when the banks were overflowing with funds, interest rates were coming down and there was overall slackening of demand, the option of mopping up funds from market was a better option than to sell the blue chip shares cheap which had the potential of yielding much better returns under normal market conditions. Secondly, there was need to temporarily abandon the mania of keeping fiscal deficit under tight control during the current financial year because of the extraordinary macro-economic developments.

The emphasis needs to be more on government spending to neutralise the aggravating impact of slackening demand on the economy. If the economy can be spurred by higher fiscal deficit, the risk may be worth taking especially in the background of very low inflation rate, rather than choking growth and selling capital assets cheap to meeting illusory statistical targets with single-track obsession.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.