In the name of divestment

Since the prime minister has seen fit to deny a place for any public sector executive or representative body on his advisory Council for Trade and Industry, SCOPE is compelled to play for the public sector the advocacy role which the CII, in particular, has come to play for the private sector. This should never have happened. An intelligent government would have provided for dialogue between the two sectors facilitating a consensual process of reforms. Instead, the Vajpayee government has so made itself hostage to the barons of big business that the public sector has had to fend for itself — against its own owners!

The memorandum and study both make it abundantly clear that SCOPE is not a status quo-ist. Indeed, it emerges from these documents as a fierce advocate of public sector reform, pleading that government rid itself of the accumulated burden of massively loss-making industrial units taken over from the failed private sector; that priority be given to closure, strategic sales or straightforward privatisation of persistently loss-making public enterprises which have lost the social or other purpose for which they were initially established; for a redefinition of the functions and objectives of such units as are retained in the public sector; and a radical alteration in the relationship of government and parliamentary control to the public sector.

SCOPE’s position is not, therefore, a reactionary denial of the need for reform. Rather it is a persuasive affirmation of the sensible position that it is not ownership per se which determines efficiency, as conveniently assumed by the two Aruns, Jaitely and Shourie, nor the transfer of management control to private hands which holds the key to miracle growth, but a well-thought out policy framework which will unburden the nation of what had best be foregone while liberating the residual public sector to come into its own in sustaining high double-digit industrial growth rates.

It is precisely such a carefully prepared policy position which the government has failed to formulate. The memorandum thus takes the place of the “white paper” which the government has persistently refused to furnish. The study shows up the government’s one-line formula — blind disinvestment to eliminate all state ownership and management control, except for a last-resort veto in a few selected cases, in all but some defence-related industries — for the ideological fatwa it is.

The study demolishes the deceitful notion that the public sector constitutes an unbearable burden on the nation. Well under half the investment in the public sector has come from government. The rest — nearly 60 per cent — has been raised by public enterprises on their own, through their own resources or what they have been able to garner from the market. Net profit earned on government investment is in the range of 17 to 19 per cent. If government would only prioritise disinvestment in taken-over industries rendered sick by the much-vaunted private sector, government’s net profits would soar into the high twenties — that is, earning back for government every year a quarter to a third of its cumulative investment in public enterprises over the last fifty years. Instead, disinvestment priorities which focus on reducing government’s take in profit-making industry, while retaining the stake in loss-making units, amount to killing the goose which lays the golden eggs.

If, as in Manmohan Singh’s time, disinvestment were limited to raising modest additional budgetary resources to cover the fiscal deficit, selling off a little of the family silver to keep the family in business might make sense. But the `big-ticket’ disinvestment now being thrust on the country is aimed only at transferring to big business houses for a song massive productive and profitable investment merely to satisfy an ideological urge. Indeed, how golden is the goose which the two Aruns are readying to kill is evidenced by the fact, brought out by the SCOPE-CIER study, that budgetary resources received by the government over the three years 1996-99 was Rs. 1,28,225 crore, a stunning 138 per cent of invested capital. If the share of profit retained by the public sector corporations is added, “the total earned/received by the government works out at a whopping 165.5 per cent”.

How burdensome is the taken-over sector is shown by the fact that half the central public sector units referred to the BIFR are industries started by the private sector. Does this validate the assumption of the Jaitley-Shourie duo that private management is necessarily superior to public management? A substantial segment of the sick taken-over public sector constitutes terminally ill textile units. Their land alone would retrieve all their accumulated losses and much more. Yet, it is not the taken-over sector which constitutes the priority in disinvestment policy but `big-ticket’ hand-over to captains of private enterprise, that is, transfer from SCOPE to CII. Why?

The comparative study shows that:

The top 50 public enterprises earned, in 1997-98, a return on net worth of 13 per cent against less than 12 per cent for the top 50 private enterprises; Yet, it is precisely these 50 enterprises the government is prioritising for ownership transfer to the private sector. Why?

Based on information collated from òf40óThe Economic Times, CII and the Centre for Monitoring the Indian Economy, the study finds that the ratio of net profit after tax to net worth for the basic public sector (that is, excluding taken-over enterprises) is substantially higher than for comparable Indian business houses; in 1997-98 the coefficient for the public sector stood at 5.4 against 4.7 for the domestic private sector.

The new criterion for measuring comparative performance — economic value added — also shows the top 100 public enterprises (that is half of all public enterprises) outperforming their private sector counterparts.

Market capitalisation of public sector enterprises listed on the stocks exchange was, on the eve of the 2000-2001 budget (February 25), as much as 11 times their paid-up capital. Can `big-ticket’ disinvestment in these navaratnas and other diamonds of the public sector diadem be justified at any level below that? Did the GAIL disinvestment come anywhere remotely near this level? Then why do it?

It is not the taken-over sector which constitutes the priority in divestment policy but `big-ticket’ hand-over to captains of privateenterprise