The first view dismisses the exercise as a fudge, whose sole aim is to shift the burden of funding the deficit to the public-sector companies. Since there is no concept of a total public-sector borrowing need in India, the government's books can be cooked by such simple expedients.

The second way of looking at the government's attempts is more charitable. Instead of "plain vanilla" offloading of shares to investors, which would not ensure adequate returns because of the depressed state of the market, the argument is that since banks and FIs are flush with funds, the money can be used to finance the centre innovatively.

What is being proposed is that while banks have so far continued to fund the government through subscribing to its bond issues, they will now be called upon to fund the government by subscribing to its equity. There is, however, a majordifference between the two modes of financing. While subscribing to government bonds is a risk-free option for banks, subscribing to equity of PSUs being disinvested is not. So, the government runs the risk of undermining the financial system's foundations.

The crucial issue is pricing. If the disinvestment to banks and FIs is at market-related prices, banks will run relatively little risk of being forced to take a loss. But whether the pricing will be transparent is a moot point. If banks are arm-twisted into subscribing to equity at prices far above the market's, there is a real risk.

One of the factors behind UTI's problems with its US-64 scheme is the role which it is forced to play to prop up the stock market. If banks are now forced to prop up the centre's finances, it may well undermine their foundations, with serious consequences for the future of the financial system.

Yet there are indications the government is reluctant about transparency in pricing disinvestment. For example, if Maruti sharesare to be divested at market prices, why should they need to be offered to banks and FIs--they may as well be offered to the public. In Maruti's case, there is little doubt there will be substantial investor appetite. For these reasons, the government must be cautious about the warehousing proposals, and ensure banks and FIs do not have to bear large losses. The best way to ensure that would be to offload shares at current market prices, with a stipulation to hold them for a certain number of years, and a proviso that banks and FIs will pass on a part of any gains arising from future sales of the shares to the government.