The Cabinet’s approval last week for the restructuring of two ailing public sector units — Hindustan Fertilizer Corporation Ltd and Hindustan Steelworks Construction Ltd — by waiving their loan dues and assuming some of their liabilities raises doubts over the Centre’s commitment to reform of PSUs through the disinvestment process. Hindustan Fertilizer Corporation landed in the lap of the Board of Industrial and Financial Reconstruction (BIFR) back in 1992 and its three plants were closed in 2002. Now, the Centre wants to revive one of those plants to produce urea and so is writing off a loan of ₹1,916 crore that is owed to it by the company along with accumulated interest of ₹7,163 crore to pull it out of BIFR’s clutches. The case of Hindustan Steelworks is even more curious. The Centre will convert its loan of ₹1,502 crore given to the company into equity so that the accumulated losses of ₹1,585 crore can be set off against the networth. Subsequently, Hindustan Steelworks will be taken over by National Buildings Construction Company (NBCC), a profitable PSU. Further, the Centre will spend ₹350 crore to pay off the company’s loans to banks and discharge other liabilities.

The decisions appear odd and out of sync with the reformist image that the Centre wishes to project. Why revive a company that has been defunct for more than a decade and why should the Centre get into producing urea again? Doesn’t this run contrary to the avowed policy of exiting loss-making companies by disinvesting the Centre’s stake to private buyers? The idea of making NBCC acquire Hindustan Steelworks is a bad one too as the former is a profitable venture whose stock is valued highly in the market. The takeover will weigh down NBCC and dent its valuation in the market. What exactly is the grand strategy behind these moves? If anything, they are reflective of confusion at the policymaking levels — on the one hand the Centre sets itself an ambitious target of ₹56,500 crore from disinvestment in this fiscal and on the other it seeks to revive ailing units pushing good money after bad instead of just exiting from them.

Indeed, the Centre’s disinvestment policy has turned out to be something of a joke as it fails to meet targets year after year, irrespective of which party is leading the government. Strategies such as forcing cash-rich PSUs to buy back shares from the Centre have made a sham of disinvestment. The present government made the right noises when it took over about going in for strategic sales of loss-making PSUs to take the load off the Centre’s finances. Yet, there has been no serious pursuit of this idea in the last two years, and the only disinvestments that have happened have been piecemeal sales of selected PSU shares in the market, apart from the buyback programmes, of course. It is time the Centre focused on disinvestment as an important tool in reform of the public sector.