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Journalism of Courage
Mostly bark, but very little bite best describes attempts by successive governments to implement disinvestment in public sector units. Will the government’s most recent decision be any different? NANDITA ROY reportsCut to 1991. A severely cash-strapped government, on the lookout for international financial bailouts, throws open the Indian industry to the private sector and to multinational competition. It also decides to make quick money by selling off family silver in state-owned industrial monopolies.
The government sets itself a target of Rs 2,500 crore in 1991-92 to be earned from PSU share sales. Twelve months later, it far exceeds the target by bringing Rs 3,038 crore into its kitty. In subsequent years, the euphoria generated by that single event ends up in a major disappointment for the government.
Fast-forward to 1999-2000. Taking a leaf out of the book his predecessors wrote, Finance Minister Yashwant Sinha sets himself an ambitious target of generating Rs 10,000 crore through disinvestment. Again, 12 months later, the government ends up with a paltry Rs 2,600 crore, marginally higher than the target set in 1991-92. In nine annual share plans since liberalisation, the government has managed to meet its target only thrice in 1991-92, 1994-95 and 1998-99. What’s going wrong? Experts reel out the problem areas: lack of a clear-cut policy on disinvestment, narrow and short-term goals to bridge the shortfall in government expenditure, opposition from vested interests within the government and outside to the sale of PSUs, the deeply entrenched mindset of PSU employees who have grown used to government-backed job security without adequate responsibilities and lack of political will.
Result: In nine years, the government has been able to mop up only Rs 19,912 crore as against a target of Rs 44,300 crore from the sale of its own shares in 39 PSUs, which is just 45 per cent of the disinvestment target.
“The entire objective was wrong. The government was garnering the amount to reduce its fiscal deficit. Whereas, the primary objective of disinvestment should be to increase efficiency and not revenue,” said R. Srinivasan, director, Jardine Fleming India Securities Ltd.
Pro-reformists insist that this efficiency can be achieved by putting the government out of business. This is not to suggest that all private sector organisations are efficient. However, market forces would leave them with little choice.
The single most important reason that has hindered the government’s privatisation plans is stalling tactics adopted by its own ministers. While this was true to some extent during the five-year Narasimha Rao regime, this opposition gathered momentum when the 13-party United Front government took over. The Vajpayee-led NDA coalition has not been able to improve the score. Before Vajpayee’s cabinet committee on disinvestment meeting took place last Friday, ministers from coalition parties were busy stalling privatisation moves in companies under their command.
While Manohar Joshi, minister in the Department of Heavy Industries and Public Enterprises vehemently opposed privatisation in Maruti Udyog Ltd and even went to the extent of identifying five PSUs – BHEL, HMT, HEC, BOGL and HPF as “strategic” where the government should not divest its stake, Petroleum Minister Ram Naik was equally adamant over selling the government’s stake in oil PSUs.
Joshi’s logic was that MUL was working at 120 per cent capacity and did not face real threat from competitors, who were producing at just about half that rate. In fact, Joshi has amply underscored his opposition to disinvestment by sitting on reports submitted over the past six months by consultants on several units like Bridge and Roof, Engineering Projects India Ltd, Tungabhadra Steel Products etc. His ministry is yet to pass on these reports to the Department of Disinvestment (DoD).
Nevertheless, a beginning has been made with the cabinet deciding on June 23 to disinvest in 19 PSUs in the current year and an in-principle clearance for strategic sale in the case of 11 more units. Another major decision is the move to stop sporadic disinvestment of minority shares and to ensure that sale of equity in these PSUs will result in change of management control from public to the private sector.
Disinvestment Minister Arun Jaitley declared at a seminar: “By offloading minority shares, the government did not get any value for them. In 39 cases, an average of 16 per cent equity has been disinvested in the market. In all these cases, there was no change in the management structure. Thus, it did not increase efficiency in any of these units. So the best way is to offload a larger chunk to a strategic partner”.
Also, for the first time, the government has managed to narrow down its share sales options from a basket full of state-owned companies engaged in a variety of manufacturing and service sector activities from oil to hotels, airlines, basic engineering, metals, minerals, chemicals and condoms.
Yet, the job at hand is far easier planned than implemented. The fact remains that the government is yet to launch big ticket privatisation which will help in getting a good price from the sale of these assets.
This year’s disinvestment programme will truly test whether the government can really go ahead with big ticket disinvestment and privatisation of state-owned companies. If not, these giant edifices that were once described by Jawaharlal Nehru as the temples of modern India may earn a new sobriquet: the temples of doom.
Totalling the toll
According to a Finance Ministry study, losses in state-owned Public Sector Undertakings run up to nearly Rs 14,000 crore annually, which is around three-fourths of the net profits of India’s top 100 companies. The opportunity cost to the government by way of equity holding in these companies has been huge. If they had invested the Rs 2,02,021 crore of capital in these companies in some other venture, they would have got a return of 12 per cent or Rs 24,242 crore, the report says.
Moreover, the annual losses of Rs 14,000 crore is thrice what the Central government spends in the agricultural sector, double of what the government spends on fertilisers and double the total subsidy given through the budget on food and fertilisers.
