HPCL should have been sold to private sector: Economists

The acquisition of state-owned refiner Hindustan Petroleum Corporation Ltd (HPCL) by the government-owned explorer Oil and Natural Gas Corporation Ltd (ONGC) last week could achieve three goals in one shot, but economists feel that it was not the best way to meet fiscal targets.

The Rs 36,915 crore ONGC-HPCL deal may help the government miss its fiscal deficit target of 3.2% of the GDP only marginally, overshoot the budgeted Rs 72,500 crore disinvestment and merge two public sector undertakings (PSUs) in the energy space for better efficiencies.

Renowned author of bestseller 'India Unbound' and other such books Gurcharan Das, who is a strong proponent of privatisation of PSUs, told DNA Money that he would have "preferred" HPCL to have been sold to the private sector.

"I, frankly, would have preferred for it (HPCL) to be sold to the private sector, and really the government should not own businesses. I have a pretty fundamentalist position on this. The governments are never agile enough to run businesses," he said.

Arvind Virmani, former chief economic advisor (CEA), finance ministry and executive director International Monetary Fund (IMF) and current president at Forum for Strategic Initiative, concurred with Das's view.

"Sale to public would be a far better way of disinvestment," he said.

According him, the latest disinvestment/merger move will reduce fiscal deficit by Rs 37,000 crore.

Das said that even though he was all for adhering to fiscal discipline, snapping up of one PSU by another was not the way to do it.

"I do believe we (India) should stick to fiscal deficit target. The most important thing is to create jobs, but you shouldn't compromise with the fiscal deficit target. They (government) will be able to show a better figure this way (by selling HPCL to ONGC and raising around Rs 37,000 crore) but this is not the way to do it," he said.

Even former finance minister P Chidambaram was quick to tweet that the deal between the PSUs will see ONGC "borrowing to pay the government".

"Government cuts borrowing by Rs 30,000 crore, but ONGC will borrow Rs 30,000 crore to pay govt for HPCL shares. It has the same effect," he said in a tweet on Saturday.

The ex-FM believes the analysts and market will factor in Rs 30,000 crore in the fiscal deficit.

"Analysts and the market will add Rs 30,000 crore to the fiscal deficit,' tweeted Chidambaram.

Das said there were many other avenues for the government to manage fisc.

"They (government) could have cut expenditure. There is a lot of excess government land. The government is sitting on a lot land which belongs to various entities – railways or other PSUs or Army. There are many ways to raise money. They (government) have government-owned shares of private companies. Why should it (government) be owning shares of private companies? They could raise a lot (of money) if they just privatise some of the (PSU) banks. No democratic country has 70% of its assets locked up in public sector banks (PSBs)," he said.

Earlier this month, the government had announced it would need Rs 50,000 more borrowings than budgeted for the current fiscal. This stoked fears of a slippage in fiscal deficit target by around 50 basis points (bps) from 3.24% to 3.29% of the GDP.

However, last week, the government trimmed the additional borrowing requirement to Rs 20,000 crore. This has sent a positive message that the fiscal deficit miss would be only by a few basis points. Now, with the buyout of HPCL by ONGC, many feel that the government would be able to stay on the fiscal consolidation course. The government has, till now, not missed its fiscal deficit target over the last four years since it came to power.

The PSU deal could also the government exceed its disinvestment target by around Rs 19,000 crore. As per official figures, divestment, till January 11, was Rs 54,337.60 crore. The latest divestment of PSU could take it to around Rs 91,000 crore, outstripping the target of Rs 72,500 by around 26%.

THE GIANT MERGER

• The ONGC-HPCL deal may help the government miss its fiscal deficit target only marginally
   
• The budgeted Rs 72,500 crore disinvestment target may be overshot with the mergers