With Mamata Banerjee pulling the rug from under UPA’s feet, the government has to run faster to avoid toppling over. Nowhere is this more apparent than in the economic sphere, where the window of opportunity is now closing rapidly as all political parties lose their appetite for reform.
On the assumption that there will be no parliament session before December, the UPA has to execute all its economic rejuvenation plans between now and November – or even earlier, before the Gujarat elections gather momentum in late-October- early November.
The best strategy for the UPA (or the Congress, in fact) in this scenario is to focus on reforms that don’t call for any political backing, and this may be what the finance ministry may be about to unleash.
The first priority is clearly to avoid a sovereign rating downgrade (the next one will move India to junk status), and keep the foreign investment inflows coming. Without this, there is no chance of improving the budgetary gap (the fiscal deficit could rise to an unheard of 6.5-7 percent in 2012-13, careening out of control.) And without dollar inflows, the rupee will sink and make the deficit worse as oil import costs balloon in rupee terms.
According to Business Standard, the key elements of this fast-forward plan include the following: more disinvestment so that the Rs 30,000 crore budget target can be exceeded (to bring down the deficit); issuing more banking licences (to private parties, so that business confidence improves), and giving a push to 90 projects involving an investment of Rs 2,00,000 crore (to revive growth).
Of these, disinvestment obviously holds out the best hope. In fact, it would take a very inept government to drop this easy catch.
The real challenge is not about meeting the Rs 30,000 crore disinvestment target, but in exceeding it by a large margin, as this earlier Firstpost story noted.
The cabinet has already cleared stake sales in four companies – Oil India, Hindustan Copper, MMTC, and Nalco. The expected pickings are around Rs 10,000-15,000 crore, but the lower limit is certainly achievable.
But the big elephants in the tent are SUUTI (the Special Undertaking of UTI) and the shareholders’ agreement with Anil Agarwal of Vedanta, which obliges the government to sell its balance stakes in Balco and Hindustan Zinc at a mutually-agreed price.
Agarwal is already believed to have offered Rs 20,000 crore for owning 100 percent of Balco and Hindustan Zinc. With some hard bargaining, the government could easily earn Rs 22,000-25,000 crore. P Chidambaram must start the valuation process quickly.
As for SUUTI, it is sitting on priceless shares like Axis Bank, ITC and Larsen & Toubro, among others, which could be auctioned in the market or sold to the companies themselves for a neat Rs 20,000 crore. They could also be part-sold for less.
Clearly, hitting Rs 50,000-60,000 crore in disinvestment is what P Chidambaram should be aiming for this year.
If the stake sales go through, the fiscal deficit will shrink, and business confidence would be better by December even if politics is going for a six.
The next big thing is to get the 2G spectrum sale auction – the schedule is to begin in November and end in January – on the road and see that nothing screws it up. If the auction draws good bids, that’s another Rs 40,000-50,000 crore in the kitty (though some of that is already budgeted for).
The third treasure chest to hit on is cash-rich companies like Coal India. According to BusinessLine, nine cash-rich public sector units – National Thermal Power Corporation, Steel Authority of India, Oil India and Coal India, among them – have free cash of Rs 1,80,000 crore between them.
At a meeting last week, Chidambaram asked them to either invest the money or hand it over as dividends. If they invest, growth gets a boost; if they hand over a part of the booty to Chidambaram, his budget deficit gets smaller. It’s win-win for him.
Clearly, if the Congress acts fast, it can still salvage the 2012-13 budget and find space for an election-eve giveaway in 2013. That will ruin it for whoever wins in that election, since Chidambaram will be handing him or her a poisoned chalice.
But that’s tomorrow’s worry. For today, the key is survival. For this Chidambaram has to run fast to stay in the race. He has to compress the remaining fund-raisers in four-six weeks.
Run, Chidambaram, run. You and your party have everything to lose if you don’t.