Govt may use disinvestment funds to bridge fiscal deficit

The government will use disinvestment proceeds for bridging fiscal deficit, reports CNBC-TV18, quoting sources. Moreover, sources also say that the Cabinet will be discussing a 2-year holiday now for national investment fund (NIF). CNBC-TV18's Siddharth Zarabi reports.

Below is a verbatim transcript of his comments on CNBC-TV18. Also watch the accompanying video.

Ever since the UPA government came to power the second time there have been issues about the national investment fund. All previous disinvestment money has been parked in this fund which is managed by three PSUs mutual fund managers and 75% of that money has to go in for social sector schemes. So clearly there was a rethink in the government and now the Finance Ministry has finalized and proposed to the Cabinet a 2-year moratorium, it may actually be more than 2-year. However, that will be decided once the final decision is taken by the Cabinet. What will really happen is that all the money that is coming in for the government account during the current round of disinvestment that have already been decided, all of this money will go directly to the Central government's account--the consolidated funds of India. Therefore, that will help in reducing the fiscal deficit to some extent.

Remember that in the budget estimates for the current financial year, the Finance Minister had only pegged the disinvestment proceeds at a low Rs 1,000 crore. However, clearly much more is going to be raised, especially when divestment cases like NMDC are finalized.

So the government putting this whole NIF into some sort of hibernation for the time being because it is not really served the purpose that it was intended for and it was created essentially as a measure to appease the Left allies during the last government. With them gone this time around the government feels comfortable that it can proceed with divestment.

Moreover, Power Grid is in the process of finalizing the follow-on offer. However, that will not happen this fiscal. All future divestment cases in PSUs will essentially have both the government selling direct stake as well as a fresh round of equity to raise money for the company. Also, the 25% minimum floated equity proposal that was under discussion for all listed PSUs has not been finalized as yet. As and when it is finalized, all PSUs which are currently listed will have to move to a minimum threshold of 25%. Hence, a lot of action will happen in the next few months on this front.