By R Jagannathan
The UPA government seems to have mastered the art of running fast to stay in the same place; or even losing with one hand what it gains on the other.
The way it handles revenues and expenditures tells us how all its positive actions are cancelled out by negative actions or inertia.
In 2010, it earned a bonanza from 3G auctions – Rs 1,06,000 crore. The entire amount and more was lost the same year in bloating oil subsidies.
Last year in June, the government summoned up the courage to actually increase petro-fuel prices (something it is dithering about this year), but guess what? It raised diesel, kerosene and LPG prices to reduce subsidies by Rs 51,000 crore; but it simultaneously reduced duties on these products by Rs 49,000 crore. By giving with one hand and taking with another, what did it achieve? It was a wasted exercise.
In 2008, the government asked the State Bank of India to offer low-priced home loans to encourage purchases. The bank launched the so-called “teaser” loans – and racked up losses. Thanks to that, the government, as majority owner of the SBI, was forced to invest Rs 7,900 core in shoring up the bank’s capital last year. If the government hadn’t pushed the bank into losses, it could have saved itself some expenditure on capital infusion.
This year, the finance ministry wants to raise Rs 30,000 crore from disinvestment. So far, so good.
But, at the same time, the government will be investing Rs 30,000 to rescue Air India (spread over some years, to be sure) and spending another Rs 28,000 crore on other loss-making public sector enterprises, says The Economic Times. Disinvestment earnings will be more than cancelled out by re-investment in dud enterprises – Air India included.
In the next few weeks, the government will pressure public sector units like Sail, Bhel and some other companies to offer shares to the public so that the government can disinvest some of its holdings. According to ET, the parent ministries of several public sector companies are opposed to this as their shares will fetch a lower price in the current market.
A firesale in a bad market is being attempted when there are easier ways to raise the money. The Vedanta group has offered Rs 20,000 crore to buy back the government’s balance holdings in Balco and Hindustan Zinc; plus the government is sitting on several private sector shares in the Special Undertaking of UTI (L&T, ITC and Axis Bank) where it could easily raise another Rs 20,000-30,000 crore, if not more. (SUUTI holds 11.54 percent in ITC, 23.6 percent in Axis Bank and 8.3 percent in L&T. These stakes have a market value in excess of Rs 30,000 crore).
When disinvestment is not quite needed, why waste time trying to push it down unwilling public sector throats?
In March this year, the government decided to raise money by selling ONGC shares. When the market was lukewarm – due to the government’s wayward policies on oil subsidies – the finance ministry pressured the Life Insurance Corporation to buy the shares. LIC is 100 percent owned by the government. So the action is no better than transferring money from one pocket to another. But this is what happened.
Now, if LIC needs money to shore up its own capital or solvency ratio, the government will have to dish it out. Money given to government for ONGC will be funneled back to LIC at some future date.
In the budget, Pranab Mukherjee went out of his way to ensure that Vodafone does not escape taxation on its purchase of Hutchison Essar in 2007. His successor is trying hard to ensure that this law is applied – if at all – ever so lightly on Vodafone.
The government is trying to secure higher revenues by any means, but the Parthasarathi Shome committee set up to review the General Anti Avoidance Rules (GAAR) and close loopholes, which were always part of the Direct Taxes Code, is now calling for the abolition of all capital gains taxes both for foreigners and domestic entities. So much for balancing the budget.
Does this government know what it wants?