New Delhi: Under pressure from its allies Prime Minister Manmohan Singh has put on hold all divestment proposals including the 10 per cent stake sale in the public sector enterprise, National Aluminium Company Limited (NALCO) and Neyveli Lignite.
Earlier when the Government had decided on the stake sale in Neyveli Lignite, it was to re-ignite interest in the IPO market. Now, market analysts fear the decision to keep further stake sales on hold could dampen sentiment in an already volatile market.
While the decision is bound to impact heavily the shares of the two public sector units, analysts fear the India reform story could also come under a cloud.
"There is a bigger worry on the picture of reforms. The worries are on the sustainability of Government, whether the government will manage to pull its allies along," Market Analyst, T S Harihar says.
The 10 per cent stake sale in Neyveli Lignite was simply to give a boost to the dampening IPO market. It would have in no way diluted the Government's control, which would have stood at its 83 per cent share even after the public issue.
So where did the UPA Government go wrong in its disinvestment plans?
"Every time the Government retracts from a decision, its prestige will diminish. This is an empirically established point. Thereafter, it is an open question as to how it meets the fiscal situation of the country. Delivery is diminished for sure," Former Finance Minister Jaswant Singh says.
Clearly divestment is unlikely to figure anytime soon in the UPA's reform agenda. But the big question now is will it be able to act on other economic policies?
Cornered by its allies on the one hand and the Opposition on the other, Manmohan Singh's dream-team may find the path to reforms a very slippery one.