Time to raise the stakes

Sushma Ramachandran

THE strategic sale of government stake  in public sector undertakings appeared to have been virtually forgotten till recently, when reports appeared that Vice-Chairman of Niti Aayog — the erstwhile Planning Commission — Arvind Panagriya has submitted a report on the subject. The term strategic sale implies that the government will bring down its shareholding to below 50 per cent, or could even go for outright sale of the company. Disinvestment of a minority stake, on the other hand, is merely reducing the government’s shareholding without losing majority stake in the public enterprise. The latter has been used as a revenue raising exercise by all governments.

For the past few years, the Budget has mentioned public sector disinvestment as a big revenue resource, but nothing much has actually taken place. Earlier, the UPA and now the NDA government are hesitant to sell shares in the market owing to continuing volatility. Despite the bright growth picture, the Sensex has only in recent months started showing a positive bullish trend. It is now at about 27,700 as against 24,700 when the Modi government took over. Certainly an increase, but not a substantial one, compared to the high expectations at the time.

During the earlier NDA government, strategic sales were carried out in a big way under the stewardship of the then disinvestment minister, Arun Shourie. Several companies like Balco and Modern Foods were privatised along with a host of small ITDC hotels. There were, subsequently, complaints about the resale of several public sector properties at a much higher price after disinvestment took place. This was especially in the case of hotels. In the case of Modern Foods, which was sold to Hindustan Lever, it was resold only after 15 years. The aluminium unit, Balco, however, remains with Vedanta Resources which had bought a majority stake in the company.

The questions raised over the sale of public sector hotels may be one of the reasons that both the UPA and the present government have been wary of selling strategic stakes in public enterprises. Judging by the views of Mr Panagriya however, the situation is now set to change. His report is said to have identified as many as 32 loss-making PSUs for strategic sale. These include Bharat Pumps and Compressors, Tyre Corporation of India, Central Inland Water Transport Corporation and Bengal Chemicals and Pharmaceuticals Limited. The list is interesting, but predictable. The usual suspects, one might say. These are the same companies that have been identified over the past few decades every time such a review of sick PSUs is carried out. Ultimately, when sale is proposed, a host of issues will come to the fore, including ensuring that existing employees are retained by buyers. This has always been the main sticking point because prospective investors are not enthused at finding a surplus workforce which has to be retained at any cost. 

The ambitious plan mooted by Mr Panagriya envisages strategic disinvestment for 10 companies right away, with the option of revival being kept open for others before going down the same route. While the enthusiasm is laudable, it should be tempered by past experience in this area. It takes a great deal of political will to carry out strategic sale of government companies. In the earlier government, it was possible for Mr Shourie to do so with the staunch backing of the then Prime Minister, Atal Behari Vajpayee. In the present setup however, there has not been much enthusiasm for carrying out reforms that may not be politically palatable. For instance, the opening up of the insurance sector has been kept on the back burner. The more consumer friendly initiative to pass the real estate legislation, on the other hand, has been carried out with alacrity.

The disinvestment report has also apparently made a list of 74 loss-making undertakings. Of these, it has recommended the closure of 26 companies. It will indeed be a great feat if Mr Panagriya is able to close even a handful from this list. Political will, once again, is the key issue. The closure of a company entails giving a safety net to workers employed in it. Local political leaders will spring up to demand protection for workers, as well as alternative employment which is not easy to provide in all areas. 

The other proposals which include putting some companies under management contract or lease to private concerns, merger with parent companies or reverting back to the state government are, indeed, viable. However, both issues of strategic sale and closure of public enterprises are political hot potatoes, which is why the UPA government had stayed away from them. Also, why the present government has taken over two years to come up with a plan to deal with these white elephants burdening the economy?

The data from the report shows that over Rs 55,000 crore has been spent on these loss-making companies from 2004 to 2016. In addition, sick public enterprises are in debt to the extent of nearly Rs 34,000 crore. It would be a good idea to wind up many of the lossmaking concerns that are a drag on the economy. Unfortunately, emotional pleas about selling the family silver are made every time the plans for sale of public enterprises are drawn up. The fact is that the family silver has been tarnished a long time ago. There are many public enterprises that are running efficiently and making profits, notably those in the petroleum sector. But there are many which were acquired at a time when the government sought to nationalise ailing private companies, in a bid to both support industry and prevent joblessness. Many of these companies have not been able to turn the corner and need to be either privatised or wound up. This includes Air India which has reached its present state owing to faulty decisions taken in the past by politicians and bureaucrats.

So, one can only wish Mr Panagriya good luck in his ambitions of restructuring the sick and loss-making public enterprises. But ultimately, it will have to be Prime Minister Narendra Modi’s decision on whether to be pragmatically political or opt for good economics in dealing with the public sector.