Sources have confirmed to The Indian Express that his Ministry is working on a proposal to modify rules to allow the government to use funds realised from stake sale in public sector undertakings (PSUs).

For, at present, disinvestment proceeds have to be parked in the National Investment Fund, an instrument created by the United Progressive Alliance government in 2005. And the Centre cannot dip into the NIF corpus that stands at a modest Rs 4,000 crore now, but can, however, utilise the returns generated by the fund.

The NIF corpus is to be managed professionally by investments in selected public sector mutual funds. Three-fourths of the money earned by the fund can be used for social sector schemes and the balance towards reviving PSUs, according to a government notification of November 2005.

Finding it difficult to sustain a fiscal deficit estimated at 6.8 per cent of the Gross Domestic Product this year, the Ministry is exploring ways to change the character of the NIF so that it can partially meet the expenditure of the UPA’s massive social sector obligations.

A finance ministry official said a proposal was being drafted to seek the views of the UPA II’s Cabinet Committee on Economic Affairs. It was this committee in the previous UPA tenure that approved the setting up of the NIF that barred the Centre from letting sell-off proceeds flow directly into the Consolidated Fund of India as is the case with all other receipts.

In other words, the money realised from stake sale bypasses the CFI and finds its way into the NIF. Ironically, it was the Congress which had criticised the BJP-led National Democratic Alliance government for using disinvestment proceeds to bridge the fiscal deficit.

“We will present a note to the CCEA in the next few weeks which will alter the way the disinvestment proceeds are managed and then used. They will, of course, continue to be used for only social-sector schemes,” Finance Secretary Ashok Chawla said without elaborating on the precise changes in rules the Ministry would propose.

Interacting with India Inc earlier today, Mukherjee said: “Disinvestment is a continuous process and will be done in consultation with the stakeholders concerned.”