Whither disinvestment policy?
Sumit Sharma 25 March 2019
It was a proud moment for India’s outgoing finance minister, Arun Jaitley. The government had raised Rs85,000 crore in disinvestment from public sector units (PSUs) compared with the targeted Rs80,000 crore in the fiscal ending March 2019, he proclaimed to New Delhi journalists last week. 
 
He had reasons to be pleased. From a laggard Rs56,473 crore as of February end, disinvestment leapfrogged with Rs14, 500 crore from the sale of 52% of REC Ltd and another Rs 10,000 through sale of Central Public Sector Enterprises (CPSE) exchange traded funds or (ETF). 
 
Herein lies the catch. A majority shareholding in REC was sold to, ironically, another PSU, Power Finance Corp (PFC). Similarly in 2017-18, the government told ONGC to buy 51.11% stake in Hindustan Petroleum Corp Ltd (HPCL). In probably the only strategic sale of a PSU during its tenure, the national democratic alliance (NDA) government sold Hospital Services Consultancy Corp (HSCC) that provides consultancy services in health care and other social sectors, to NBCC (India) Ltd, ironically another PSU, for Rs285 crore.  
 
Did the slogan “government has no business to be in business” get left behind as a political slogan used to please expectant fat-cat chief executives (CEOs) just before elections? 
 
So is the government restructuring PSUs and consolidating them into synergistic blocks, or is it consolidating some to improve efficiency and reduce excess staffing, or is it, as in many cases, buy back of shares to help government get money? It remains unclear if it is part of any considered policy. Then one has Specified Undertaking of Unit Trust of India (SUUTI), a kaamdhenu whenever the government needs money. 
 
Was this the objective of disinvestment? 
 
The initial thought process dates back to late 1980s when the government was on the verge of bankruptcy internally as well as on its external balance. Disinvestment in India began as a gradual and almost polite process as it could not afford to be like Margaret Thatcher, who a decade earlier privatised several key PSUs in the UK, battling all odds and demolishing trade unions. 
 
Since testing waters nervously in early 1990s when it sold ‘packets’ containing different proportions of mix of PSU stocks to mutual funds, the government began to confidently sell a majority stake in PSUs to private bidders by 2000. It sold Modern Foods to Hindustan Unilever, and Centaur Hotel to Tulip Hospitality. 
 
The department then was even preparing some big ticket disinvestments such as Hindustan Petroleum. The aim then, as always, was for the government move out of companies it had no business to (mis)manage, and raise resources for other productive objectives. 
 
The vision and mission of the department of investment and public asset management is to increase people’s ownership of PSUs through disinvestment, improve their efficiency, and list more PSUs to improve their accountability.
 
Yet, what do we see….a piecemeal and muddled approach? 
 
 
During 2014-15, a 10% stake sale in Coal India fetched the government Rs22, 558 crore, and another 10% sale in SAIL fetched it Rs3,439 crore. In 2015-16, sale of 10% in Indian Oil Corp and 5% in NTPC fetched it Rs9,369 crore and Rs5,014 crore, respectively. 
 
The following year 2016-17 of the Rs35,468 crore, the government fetched, more than half of it, or Rs18,963.47 crore came from buybacks by seven top PSUs; Rs10,778.71 crore from SUUTI sales, Rs8,500 crore from CPSE ETF, offer for sale to employee fetched Rs529.19 crore, and just Rs7,475.23 crore in offer for sale (OFS) of shares to investors. 
 
In the fiscal 2017-18, the figure jumped to Rs1,00,057 crore, of which, a whopping Rs36,915 crores came from the ONGC acquisition of government’s 51.11% stake in Hindustan Petroleum or HPCL.  Another Rs17,357.48 crore came from initial public offering (IPO) of insurance companies, where government still owns more than 85%. 
 
During 2018-19, buybacks accounted for Rs8,200 crore, while the ‘golden pot’ of SUUTI contributed Rs5,378.60 crore from sale of Axis Bank stake. Offer for sale (OFS) fetched just Rs5,218 crore from sale of Coal India shares. IPOs got it Rs1,703.55 crore. The remaining came from exchange traded funds and the PFC-REC deal. 
 
There was no sale of unprofitable PSUs, full or in part, to private or overseas players. Mergers for reducing over-staffing, duplication of work and improving efficiency seems missing. Merger of the three PSU banks led by Bank of Baroda is a clear example of this. Pathetically unprofitable companies such as IDBI Bank was given a lease of life from Life Insurance Corp of India (LIC). The bank could have been restructured and downsized. 
 
As part of his election rallies in 2013 and 2014, Narendra Modi, the prime minister now, promised to help PSUs turnaround to profitability, and the one’s that could not be revived were supposed to be axed. During the course of the tenure, the policy seems to have got clouded. While OFS, IPOs and ETFs may be measured ways to move out of PSUs, the other steps are open to debate. 
 
The top 10 unprofitable PSUs posted a loss of Rs31,000 crore in 2017-18, almost half of it coming from Bharat Sanchar Nigam Ltd (BSNL) and Air India. One wonders when the private sector has completely taken over these sectors, and some established names are also on the verge of bankruptcy, is there any justification for the government to keep sinking money, denying productive avenues the much needed investment? Shouldn’t the government focus on improving efficiency and cutting losses? 
 
While slogans like “minimum government, maximum governance,” are best left to political parties to debate in the ongoing elections, the next government should seriously review its policy with regard to the so-called disinvestment. Isn’t it time for the government to get rid of the dead wood and re-route resources for better objectives? 
 
One would like to see a clear sharp focussed policy after due debate and political will. There are varying estimates to show the level of inefficiency of the unprofitable PSUs. They seem to have missed the government’s attention. 
Comments
Parimal Shah
5 years ago
The divestment is an eyewash. Such transactions are NOT real divestments. These are accounting jugglery. The power to control is so temting the ministers forget what they said and meant and try to justify what they did.
Shame.
Ramesh Poapt
5 years ago
next govt will start setting things differently.
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