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After NIF burial, selloff money to fill fiscal hole

In an attempt to reduce the fiscal deficit that has to be met through borrowings, the finance ministry plans to set aside the proceeds from selling state-owned shares in public enterprises.

, ET Bureau|
May 05, 2009, 12.16 AM IST
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NEW DELHI: In an attempt to reduce the fiscal deficit that has to be met through borrowings, the finance ministry plans to set aside the proceeds from selling state-owned shares in public enterprises, instead of depositing them in the National Investment Fund (NIF). The proposal entails winding up the NIF.

The fiscal deficit is currently over 10% of the gross domestic product for the Centre and the states combined, minus the window dressing that pretends that some kinds of government expenditure like subsidy on petroleum products, fertilisers and food, are not part of its expenditure.

Presently, disinvestment proceeds flow into the NIF, which is outside the Consolidated Fund of India, from which the government spends as authorised by the Budget.

���We are considering winding up the NIF to bring proceeds from disinvestment into government accounts to address the issue of mounting deficits without overshooting borrowing limits. The final call on this will be taken by the new government voted to power,��� said an official requesting anonymity.

A high fiscal deficit signals a high demand from the government for savings in the economy, which could starve the private sector of credit, lead to inflation and widen the external current account deficit. The new government will come under pressure to show that it is serious about fiscal discipline and reducing macroeconomic stress.

In the system of deficit accounting followed by the government, the proceeds of its stake sales would, if appropriated to the Consolidated Fund of India, reduce the deficit and reduce the government���s borrowing need.
The UPA government had created the NIF in 2007 into which the proceeds of disinvestment were to flow.

This corpus is managed by professional asset management companies like UTI Assets Management Company, SBI Funds Management Company and Jeevan Bima Sahayog AMC.

The returns are ploughed into social sector schemes, revamping sick public enterprises and other activities deemed politically correct by the UPA���s erstwhile Left allies, which, ironically, had also fought tooth and nail the government���s disinvestment plans.

Disbanding the NIF is a policy decision that has to made by the new government. Once the new Cabinet is in place, a decision can be expected, the official said.
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