Rebooting disinvestment

With the NTPC offer mopping up ₹5,000 crore this week and taking the disinvestment tally for 2015-16 to ₹18,340 crore, it is clear the public sector disinvestment programme is running true to form this fiscal. It is set to miss its original target of ₹69,500 crore by a mile. The disinvestment secretary’s point that one cannot be dogmatic about targets and deadlines while pursuing the PSU disinvestment programme is well taken. Given that PSU disinvestment presents a one-off opportunity for the Centre to monetise valuable assets in its fold, there’s no sense in rushing ahead with the sales when market conditions are less than ideal. But the Centre, which has adopted innovative ideas in other areas of policymaking such as financial inclusion and subsidies, should write a new script on disinvestment.

Three changes will help to give the disinvestment programme a much-needed reboot. One, the Centre needs to urgently revisit the basket of PSU candidates it has lined up for minority equity sales. Running down the list of disinvestment offers that have hit the market over the last five years, it is evident that the same set of PSU hopefuls have knocked at investors’ doors time and again. NTPC, Engineers India and NMDC have, for instance, tapped the markets thrice in the last five years, while SAIL, Coal India and Power Finance Corporation have made two offers each. In many of these cases, stake sales have been proceeded with despite a severely adverse turn in the sector prospects or the commodity cycle, which has resulted in successive offers fetching lower and lower valuations. Forming a larger pipeline of PSUs tailored to investor preferences and sector prospects will ensure a far healthier appetite for these offers. In selecting the right candidates and timing these offers for maximum effect, the Centre should hold the investment bankers accountable. Two, a significant marketing effort needs to be put into showcasing the strengths of the PSUs on sale so that these offers draw participation from a more diverse set of investors. Currently, PSU offers are hustled through in a great hurry, ostensibly to prevent stock price manipulation, with the LIC lapping up most of the shares.

Finally, for disinvestment to serve its original purpose of reducing the government’s role in business, strategic sales in loss-making PSUs such as Air India and BSNL need to be actively pursued. Here, if the Centre’s worry is that it will be accused of partisanship, all it needs to do is to draw upon the detailed recommendations made by the 14th Finance Commission on disinvestment. After providing specific quantitative financial and strategic tests to identify PSUs for disinvestment, the Commission has actually gone ahead to shortlist as many as 88 PSUs that are in ‘non priority’ areas and are thus ripe for sale. With such readymade solutions at hand, why wait?

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