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Chief Economic Advisor Krishnamurthy Subramanian on Tuesday said the disinvestment of a profitable company like BPCL reflects a change in the way government views disinvestment and privatization.
"So far effectively the disinvestment figure had to decide fiscal deficit figure... but what we see now basically profitable companies like Bharat Petroleum is also being given to the private sector. It's a change in stance the way we view disinvestment and it also explains why this is required," Subramanian said while speaking at FICCI ARISE Conference 2019.
Batting for private investment, the CEA said: "The private sector does a far better job of taking the savings of the economy and ploughing it back in the form of taxes and job creation. The public sector can then use it for welfare", he said.
Subramanian said investment is the key driver for sustained growth. "Reforms that we are seeing today is an articulation of a cogent vision that essentially has investment, and especially private investment, at its heart," he added.
He said that in order to attract more investments, the tax rate becomes extremely crucial, especially on the corporate side. He said tax rate cuts are necessary, but not necessarily sufficient conditions for attracting investments because investors look at after-tax returns.
The CEA's views came amid questions over stake sale in profit-making PSUs. The government on Tuesday said in the Rajya Sabha that the criteria for disinvestment were not profit or loss. In oral reply to a question from Shiv Sena MP Sanjay Raut, Minister of State for Finance, Anurag Thakur said the criteria for disinvestment have been fixed by Niti Aayog and it is not on the basis of profit or loss.
The Minister said the criteria have been decided on the basis of national security, sovereign functions, market imperfections and public purpose. The Modi government has given in-principle approval for disinvestment of about 28 central public sector enterprises (CPSEs) which include profit-making companies like fuel refiner and retailer BPCL and Container Corporation of India Ltd (CONCOR).
As per the disinvestment plan, the government has decided to sell majority stake along with management control in various companies. Going full steam on disinvestment, the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi last month approved sale of government's 53.29 per cent stake in BPCL.
Strategic disinvestment of Shipping Corporation of India Ltd along with transfer of management control to a strategic buyer was also cleared with the CCEA approving stake sale of 63.75 per cent in the company.
"The government follows the policy of disinvestment, strategic disinvestment of CPSEs, which are not in priority sector," Thakur said in the Upper House.
The Chief Economic Advisor said reforms are necessary to enhance productivity in the economy and unshackle the entrepreneurial spirits. Direct Benefit Transfer, Aadhaar, Insolvency and Bankruptcy Code, Goods and Services Tax (GST) and programmes such as Pradhan Mantri Jan Dhan Yojana are some of the key reforms taken by the government.
"We do need more reforms to enhance productivity in the economy. We need reforms to unshackle entrepreneurship in the country," he said.
Reforms that the country is seeing today are articulation of cogent vision, he added. Human capital and education are also key factors for the growth of the economy, he noted.
"Now India is as competitive for investment as any other economy. India is a much larger economy as it has a much bigger labour force and much bigger market," said Subramanian.
Highlighting the importance of human capital in education, Subramanian stressed the need for more research and urged the corporate sector to invest more in research.
"It is important for the corporate sector to understand this intrinsic feature of research and encourage and invest in it," he said.