Patchwork disinvestment

The public sector disinvestment programme meeting its ambitious targets for the second year running seems to have put the NDA regime in a celebratory mood. That disinvestments, which had raised only ₹56,473 crore by end-February 2019, managed to end FY19 with ₹85,000 crore, overshooting targets, is certainly good news for the fisc. The Centre has been grappling with an expenditure overshoot and an overflowing disinvestment kitty certainly helps restrain the deficit number. But in its haste to showcase a healthy fund-raise, this government has resorted to multiple shortcuts that compromise both the long-term interests of profitable PSUs, and the basic objectives of the disinvestment programme.

Of the total proceeds of ₹85,000 crore this year, it is worth noting that only about two-thirds has been contributed by actual dilution of the Centre’s ownership stakes in PSUs. This has been achieved through Exchange Traded Funds (ETFs), IPOs and offers for sale. This has been liberally supplemented by requiring capital-intensive PSUs such as ONGC, IOC and BHEL to announce share buybacks that they could well do without. While this has padded up the disinvestment figure by about ₹10,000 crore, it is a moot point if buybacks can even be counted as disinvestment given that there has been no material change in the ownership of these PSUs. To deflect criticism about the Air India sale coming a-cropper, the NDA regime has put through a couple of strategic sales too. Here, it has opted for arranged marriages with pre-decided suitors, instead of open auctions to identify the best acquirers. Its equity in Hospitality Services Consultancy Corp has been conveniently ‘sold’ to NBCC, a listed PSU, for ₹285 crore, and that in Dredging Corporation has been offloaded to four port trusts. In a last-minute effort to bridge the shortfall, the Centre has also brokered the transfer of its controlling stake in REC to PFC to raise ₹14,500 crore. PFC and REC are both financiers with highly leveraged balance sheets who have been hit hard by India’s power sector distress. There are worries that a combination of these two firms, far from improving their borrowing capacity, may in fact prompt institutional investors to curtail their aggregate exposure. Though such forced inter-PSU deals are justified on the grounds that they unlock better efficiencies and synergies, such benefits often remain on paper due to turf wars and integration issues.

Overall, of the various methods that this government has experimented with for disinvestment, the ETF route has proved the most successful with Bharat-22 and CPSE ETFs raising over ₹45,000 crore. The new government must stick to this route instead of resorting to expedient shortcuts for disinvestment. More importantly, for disinvestment to count as a reform, it is critical to kick off the long-pending privatisation of loss-making PSUs. When it comes to the public sector disinvestment programme in India, the means are far more important than the ends.

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