Budget 2021: Sell stakes in PSUs; prioritise spending to boost economy, says Raghuram Rajan

As Finance Minister Nirmala Sitharaman prepares to deliver her third Budget on February 1, former Reserve Bank of India (RBI) Governor Raghuram Rajan has said the government should take advantage of the rally in the Indian equity markets right now and sell stakes in PSUs while prioritising spending to get the economy back on track. He said that Budget 2021 should focus on providing "relief to the poorer households and small and medium enterprises".

Rajan said prioritising spending is important as it would help the government focus on what is essential, such as relief to poor households and small businesses. The government must look to boost spending on infrastructure as it is "one of the best ways" of getting the economy back on track, he told ET Now.

He further stated that as states do most of such spending, they should get the money.

Rajan also made a case for selling stakes in public sector units (PSUs), saying that the resources needed to boost spending can be met with it. A "greater source of reducing the deficit (between the revenue generated and expenditure) may be in selling assets," he said.

He said that disinvestment targets have not been achieved. "Nothing really has been privatised. What you have really done is share sales," he said. "Where are the share sale sales? You should be selling shares from every rooftop if you are in a tight constraint. Why are we not doing that? What is holding them back?" he asked.

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Finance Minister Nirmala Sitharaman had in budget 2020-21 set a target of raising Rs 2.1 lakh crore from privatisation and the sale of minority stakes in state-owned companies. According to the Department of Investment and Public Asset Management (DIPAM), the government has so far raised Rs 28,298.26 crore from disinvestment proceeds and is likely to miss its disinvestment target by a wide margin.

While some progress may have been made in recent months, "I would want to take advantage of the high prices (in the stock market) if I could," he said. "So, more infrastructure financed by share sales and so on and getting the infrastructure spending out through the states may be easier than getting it all done by the Centre. Those are things to consider as we go forward."

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On reforms, he said, they were important "but we have to do them in a way that does not prompt a reaction which means much more thought going into them, much more consultation and much less of my way or the highway."

Referring to the recent rebound in the economy, he said it is too early to heave a sigh of relief. India's economy contracted by just 7.5 per cent in the September quarter compared to a record fall of 23.9 per cent in the April-June quarter of 2020.

"We will see a rebound but the question is what are we doing to make up the lost ground? The World Bank estimates we will have lost $900 billion of GDP by the time this is over and I do not know how good those estimates are but that is one-third of GDP! How long will it take to reach the track we were on before the pandemic now?" he said. 

With PTI inputs