Thursday, April 24, 2014

Until a couple of months ago, the Congress-led UPA government was struggling to meet its disinvestment target of Rs 40,000 crore for 2013-14. Thanks to a financial jugglery, letting some central public state enterprises to pick up government shares in a few public sector companies, the government has earned the dubious distinction of not only meeting its much-reduced target of Rs 16,027 crore but also exceeding it by about Rs 1,000 crore.

The sale of Maharatnas (the biggest jewels), Navratnas (nine precious jewels) and Miniratnas (small jewels) has always been a matter of debate since the government announced its disinvestment policy in the early 1990s. Though the categorisation of public sector undertakings (PSUs) provides an idea of their enormous wealth, it is also a pointer to why the government has been reluctant in pushing its disinvestment plans.

·       Ministers do not want to lose control of these white elephants for political and pecuniary reasons.
·       Disinvestment targets and decisions are announced in advance, leading their stock prices to fall, providing a strong reason for delaying the much-hyped sale of stake.
·       Hence, every year the receipts fall short of their budgeted targets. Besides, the government also gets a pat on its back for not selling at lower prices. Small wonder that the government’s disinvestment programme has been an outright failure.

Nehruvian Era
Nehru viewed the PSUs as temples of modern India. True, they played a vital role in the country’s development. They were engaged in manufacturing a variety of products, processing raw material and providing services, besides offering employment to millions. But, it gradually became difficult to manage their affairs. The bureaucrats vested with the responsibility of running them adopted unfair and corrupt practices to serve selfish ends. The “temples” also started taking a toll on the public exchequer as many of them were running into huge losses.

The times of 80’s -
For the first time in the mid-eighties, the government’s revenue account turned negative. Since then fiscal deficit has risen unabatedly. The government was not even able to meet the basic expenses for running the PSUs, making ground for privatisation and disinvestment to ensure their smooth functioning and management.
·       The disinvestment policy has witnessed many ups and downs.
·       The earliest recommendation for disinvestment came from the Estimates Committee of the first Parliament in 1955.
·       It recommended that at least 25 per cent shares of government companies should be subscribed by the public.
·       Unfortunately, its recommendation was not accepted as the government did not want to lose its control on the PSUs.

Post 90’s
For a change, the Chandra Shekhar government took a bold stand on disinvestment, thanks mainly to circumstances that led to the shameful shifting of government-owned gold bars to a new vault in Britain. The IMF also forced the government to raise `2500 crore through disinvestment in 1991. Thus, the government began selling its stake in a few PSUs to institutions like Unit Trust of India that had no obligation to retain the holding and could sell it in the secondary market.
The process came to a halt, when stock markets were hit by the Harshad Mehta scam.
Disinvestment could take off again only when the new government formed a disinvestment commission in 1996. The commission was given the responsibility of advising the government on the ways and means of disinvestment. On its recommendation, a few PSUs were given greater financial and managerial autonomy. The fate of disinvestment was again in limbo even as India faced numerous scams like the teakwood plantation scam and the vanishing companies scam.

The Vajpayee government -
The Vajpayee government that came to power in 1998 created a separate ministry to speed up the process of disinvestment. The government sold stocks in selected PSUs to strategic partners through bidding based on stock valuation, without going by stock market prices, which remained low. Strategic sales during the period were criticised because of alleged corruption involving under-pricing of assets, favouring certain buyers, breach of employment agreements and contracts pertaining to sale of land.

The UPA regime -
Disinvestment slowed down considerably when the UPA government came to power for want of consensus and lack of support from the Left, which was ideologically opposed to it. The agenda was again taken up when UPA-2 came to power in 2009 as the Left was no longer its part. The present government preferred partial disinvestment, rather than strategic sales.

Despite serious discussions in these 23 years, the disinvestment proceeds were largely used to reduce fiscal deficit rather than to create assets.
·       The proceeds were credited to the National Investment Fund and 75 per cent of the amount so credited was used to meet India’s financial and socio-economic needs and the balance for the capital expenditure requirements of the PSUs.

The main agenda of widening the equity base and improving performance by giving managerial control to private parties has taken a backseat. If one goes by official figures declared by the department of disinvestment, one can make out that less than 5 per cent of the total disinvestment proceeds of around Rs 1.50 lakh crore came from the privatisation of PSUs. In other words, disinvestment did not lead to privatisation as was expected.

The Singaporean Model of Disinvestment and lessons for India !!
Countries like the UK and Japan also faced similar difficulties. The difference, however, lies in managing the issues. It is pertinent to mention that Singapore managed its PSUs by establishing a separate fund during the early years of its independence. The fund, an investment company, looks after the Singapore government’s investment portfolio and its assets and is managed by a separate board responsible for taking strategic investment decisions without sacrificing the national interests, keeping intact the commercial and non-commercial considerations. Since its inception in 1974, the fund value has grown manifold.
The Indian government can also form a separate holding company on similar lines with an efficient board, independently responsible for decisions but accountable to government, embracing corporate governance practices and transparency. The entire assets and investments the government holds in PSUs can be transferred to the company, which shall switch in and out appropriately in view of the national interests.
Who knows all the ratnas the country hold may turn out to be a trillion-dollar enterprise over a period of, say, 15 years. Does it seem like a dream? Yes, dreams do come true if right decisions are taken at the right time.

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