The Hindu Business Line : Disinvestment: Will new approach pay off?

The Government's new approach that gradual dilution of government ownership through public offer is preferable to large-scale privatisation means that it will gradually shed small portions of its stake in almost every one of its 240-plus PSUs. Thus, whatever receipts accrue would be used to finance its general Budget expenses instead of adding any value to the divested unit. Will such disinvestment do any long-term good to the PSUs partially-divested but still in the grip of the Government, asks G. Srinivasan.

THE United Progressive Alliance (UPA) Government, led by the Prime Minister, Dr Manmohan Singh, the original reformer, appears to be returning to its roots. In the early 1990s, Dr Manmohan Singh first came up with the concept of disinvestment of public sector undertakings (PSUs) by offering small stakes, in tranches, to financial institutions to raise resources.

In 1991, the then Finance Minister, Dr Manmohan Singh, proclaimed that "in order to raise resources, encourage wider public participation and promote greater accountability, up to 20 per cent of government equity in selected PSUs would be offered to mutual funds, investment institutions and also to workers in these firms".

Even as successive governments experimented over the years with other forms of disinvestment, such as offer of PSUs to strategic partners, part-privatisation and divestment to retail investors, the cycle of disinvestment has now come a full circle with the UPA Government going in for shedding stakes even in profit-making public sector undertakings such as the National Thermal Power Corporation (NTPC) by making use of the company's bid to raise capital through a public issue.

The Finance Minister, Mr P. Chidambaram, while presenting the first Budget of the UPA Government on July 8, said that the Government intends to "piggy-back on the public issue of NTPC and disinvest approximately five per cent of its holding".

This, and some other cases under examination, are expected to raise Rs 4,000 crore by way of disinvestment proceeds, and the Government will get almost Rs 2,700 crore by the sale of 5 per cent stake in NTPC through public offer.

That the NTPC offer alone constitutes 67 per cent of the target for disinvestment proceeds shows that the UPA Government has deftly managed to deflect criticism, for `piggy-backing' on the public offer route to dilute the government stake. This is in breach of the National Common Minimum Programme and the declared stance of the Congress that it would not shed stake in profit-making PSUs just to raise money to plug the revenue gap or credit the Consolidated Fund of India for common use.

No sooner was the NTPC public offer successfully completed with Government shedding its stake of 5 per cent but still retaining more than 89 per cent of NTPC's stock to assuage any misapprehension, than the Government signalled its intention to restate its new view that gradual dilution of government ownership through public offer is a preferable path to large-scale privatisation.

According to a recent news story, the Government is all set to offload 49 per cent of its equity in 15 unlisted blue-chip PSUs as a sequel to the NTPC public offer. The subscribers to the NTPC IPO include corporates such as Reliance Industries Ltd as also the NTPC's own employees.

This year's Budget also proposed to establish a Board for Reconstruction of Public Sector Enterprises (BRPSE) to advise the Government on the measures to be taken to restructure public sector enterprises, including cases where disinvestment or closure or sale is justified.

The BRPSE is yet to be constituted with proper functionaries including a Chairman, while the Department of Public Enterprises in the Ministry of Heavy Industry in consultation with the Ministry of Finance and Law had already drawn up a list of 24 PSUs that need to be closed or disinvested on account of their heavy and chronic losses.

That the Government may be thinking of cosmetic changes to these units before they are wound up is suggested by the Cabinet Committee on Economic Affairs (CCEA) at its October 13 meeting giving the nod for extending budgetary support of Rs 517 crore to 24 loss-making PSUs towards liquidating outstanding statutory dues, salaries and wages for the period up to July 31, 2004.

It was stated that out of the total amount of Rs 517.43 crore, dues to the extent of Rs 231.73 crore would be liquidated within one month by way of reappropriation from the provision available in Budget Estimate 2004-05 under the head "VRS/VSS and restructuring of PSEs" and the balance Rs 285.70 crore would be utilised within one month of the availability of supplementary grants.

This largesse, it is hoped, would help "in mitigating the hardships of the employees, thereby motivating them for better output, facilitate functioning of the PSEs by de-freezing some of the bank accounts attached by Provident Fund authorities due to default in remittance of statutory dues".

The point is that if the Government has already zeroed in on PSEs that need to be wound up and are about to be referred to the proposed BRPSE for recommending permanent closure, is it not buying expensive peace by throwing good money after bad for a cause that could not be sustained or sustainable?

Or is it the intention of the Government to sell its stake in profit-making PSUs in dribs and drabs to make up for the perpetually loss-making PSUs, about which any attempt to stem the rot through hard doses of pragmatic policies including retrenchment would invite trenchant protests from various quarters.

It is also revealing that the Minister of Heavy Industries and Public Enterprises, Mr Santosh Mohan Dev, had told the Rajya Sabha in a written answer on August 16, 2004 that the number of profit-making PSUs, which was 123 in 200-01, has come down to 118 in 2002-03, and the loss-making PSUs from 110 to 107 during this period.

The previous National Democratic Alliance (NDA) government saw little merit in disinvestment and went in for privatisation but, after its roaring success with IPCL, VSNL, BALCO, Paradeep Phosphates and Hindustan Teleprinters, it got stuck in the sale of equity in HPCL/BPCL when the Supreme Court ruled that the Government should not sell its stake unless these national oil companies, created by an Act of Parliament, get Parliamentary approval for any part-privatisation.

Lest the momentum generated by privatisation euphoria dissipates, the NDA government chose the alternative path of shedding the government equity for retail investor in Maruti Udyog Limted and the response was spectacular.

The MUL equity offer to retail and institutional investors came good primarily because the potential investors were convinced that the government would gradually get itself out of the passenger car production as its stake would come down to 18 per cent once the sale was over and the majority stakeholder, the Japanese Suzuki Motors, would up draw plans to expand its production and inject latest technology to enhance the share value for the investors.

If the NDA's privatisation was alleged as ideology-driven, the UPA's strategy of shedding a small stake even in profit-making PSUs to finance loss-making PSUs' statutory dues or paying salaries for workers, instead of finding a way out to end this continuous predicament, deserves condemnation.

The UPA government's claim that as long as Government retains control over the PSE and its public sector character is not affected, the Government may dilute its equity and raise resources to meet the social needs of the people, as expressed by Mr Chidambaram in the Budget speech, would sound hollow if the proceeds are used for settling statutory dues and other losses of the units.

Set against this, what the UPA government has decided to do is to shed a small portion of its stake in almost every one of its 240-plus PSUs by degrees, so that whatever receipts accrue could be used to finance its general Budget expenses instead of adding any value to the unit in which its stake stands diluted.

Does such a scheme of disinvestment subserve the equity culture or do any long-term good to the PSUs so divested of a small portion of the Government equity but still in the grip of the Government?

What best managerial practices or transfer of technology or upgradation and modernisation of plants could be expected under such a dispensation, where government continues to be in the business of running hotels, airlines and oil facilities, not to mention a range of service industry?

With governance thus taking the backseat, balanced development across the country in terms of physical and social infrastructure has become the casualty.