The Hindu Business Line : Govt must work out innovative strategies to divest in sick PSUs

New Delhi, May 13 Disinvestment of public sector undertakings (PSUs) under the UPA regime is a passé with the Left allies using the common minimum programme to prevent the Government from resorting to any such exercise, especially the profitable ones that cross-subsidise the chronically sick PSUs.

The UPA Government’s resolve on July 6, 2006 to keep all disinvestment decisions in abeyance has condemned the very word into oblivion.

However, a cursory glance at the report of the Comptroller and Auditor General of India (CAG) on financial reporting by PSUs, laid in Parliament recently, shows that in as many as 70 out of 273 government companies and corporations, the equity investment had been completely eroded by their accumulated losses.

As a consequence, the aggregate networth of these companies had become negative to the extent of Rs 64,358 crore as on March 31, 2007, the CAG said adding that due to the deleterious development, “recovery of the loans given by the Government to these companies was doubtful”. What is worrisome is that the piled-up losses in the 70 government companies rose by Rs 3,362 crore from Rs 73,193 crore in 2005-06 to Rs 76,555 crore in 2006-07.

The National Common Minimum Programme (NCMP) has forced the Government not to privatise the profit- making companies and retain the Navaratna companies in the public sector while letting them raise resources from the capital market.

The other components of NCMP do enjoin the Government to leave no stone unturned to modernise and restructure sick PSUs and revive sick industry. In fact, the 2007-08 Public Enterprise Survey of the Ministry of Heavy Industries and Public Enterprises, laid in Parliament in the Budget session, unequivocally spelt out that the chronically loss-making companies would either be sold off or closed, after all the workers have got their legitimate dues and compensation. It further said that the Government would induct private industry to turn around companies that have potential for revival.

Market analysts are of the view that if the earlier PSUs like Paradeep Phosphates Ltd and Jessop & Co could be sold to private sector and subsequently turned around by the new management, there are no justifiable reasons for letting other chronically sick PSUs from festering further and bleeding the exchequer. They also cite yet another workable strategy devised in the case of the National Textile Corporation (NTC). Though the revival package of the textile PSU was long on conception straddling the entire 1990s, it has been one of the successful turnaround stories. When contacted, the Chairman and Managing Director of the NTC, Mr K. Ramachandran Pillai, told Business Line here that out of the 119 mills, the Corporation was able to sell as many as 67 unviable units by defraying statutory obligations in the form of wages and salaries and severance payments to the tune of Rs 21,000 crore. He said that this was made possible by sale of surplus lands vested with the mills, old plant and machinery and by borrowing in the markets. He said that once the sick units were sold, the Corporation is able to run 22 mills on its own after duly modernising them. The NTC has been bidding for joint venture partners in the case of another 18 mills, the response for which has been quite salutary, he added.

Disinvestment of PSUs would definitely draw an outcry from political allies and labour unions but if the Government could successfully market the case of Paradeep Phosphates and Jessop totally made over to private parties which are showing healthy signs of growth and also the NTC which has an admixture of the essentially PSU character and is experimenting with roping in private partners to run a few of its mills, the persistent erosion in the net worth of as many as 70 PSUs could be put down.

It is not that the UPA Government lacks legal counsel as the Finance Minister, Mr P. Chidambaram, with his legal background could devise innovative strategies to put an end to the agony of the chronically sick PSUs. A few innovative ideas from the Government in recovering the sunk cost in these albatross would help in giving the private sector an opportunity to show its mettle, besides providing a considerable corpus for the National Investment Fund. The NIF, with a major share of 75 per cent to finance select social sector schemes, also has a remit to invest the 25 per cent on capital outlays of profitable and revivable Central PSUs, they say.