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'Selloff proceeds not for consumption expenditure'

BS Economy Bureau in New Delhi

The divestment ministry is against using divestment proceeds to meet current expenditure of the government or to provide for relief work in the event of natural calamities like droughts or floods.

The ministry, which aims at exceeding its annual divestment target many times over, wants the funds to be used to reduce public debt and expand social and physical infrastructure.

"We hope the money raised from privatisation will not go into meeting emergencies or into current expenditure.

"It must be used to retire public debt and augment infrastructure, or to provide social services like drinking water, primary health and education," a senior divestment ministry official said.

Although divestment proceeds flow into the Consolidated Fund of India and cannot be distinguished from other incomes of the government, the ministry's view assumes significance in view of the target of Rs 50,000 crore (Rs 500 billion) from divestment that the ministry has set.

The government was in the process of finalising a timetable for divestment that would set dates for the divestment ministry to achieve specific milestones in the companies listed for sale, the official said. The government would safely exceed the target of Rs 12,000 crore (Rs 120 billion) announced in the 2002-03 budget, he added.

The ministry's stand on the use of divestment proceeds is backed by economists who say such receipts should not be used for fiscal expansion because they are one-time incomes.

If the government spends more than it is capable of raising as revenue, it may find it difficult to sustain expenditure in subsequent years. A better way to utilise such proceeds, according to the experts, is to earmark them for specific programmes in order that the funds are spent outside the budget, and to retire public debt that have a salutary impact on the financial markets and bring down interest rates.

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