When PSUs are milch cows

   By Ravi Shanker Kapoor ,  25-Mar-2019
When PSUs are milch cows

Government is indecorously squeezing money from state-run companies, while doing little to sell them off

Finance Minister Arun Jaitley is jubilant that the disinvestment target for 2018-19 has been exceeded. “As against a target of Rs 80,000 crore for disinvestment for the current year, the divestment receipts have touched Rs 85,000 crore today," Jaitley said in a recent tweet. But is it genuine disinvestment? That is, is it the government getting away from business by offloading its stake in public sector undertakings (PSUs)? Is it privatization, as disinvestment ought to be? The answer to al these questions is a big ‘no.’ 

One of the transactions that helped the government exceed the target was the takeover of state-owned entity REC Ltd by the another PSU, Power Finance Corp. Ltd. PFC paid Rs 14,500 crore to purchase 52.63 stake in. In the previous fiscal, 2017-18, too the government had done something similar: the state-owned oil marketing company was sold to the public sector ONGC. The latter paid Rs 36,915 crore to buy the government’s entire 51 per cent equity in HPCL.

When the government is not carrying out sham disinvestment deals, it is coming up with new methods for the purpose. The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, on March 7 approved delegation of the following to something called Alternative Mechanism (AM) “in all the cases of strategic disinvestment” of PSUs. The CCEA has given in-principle approval for strategic disinvestment, which is officalese for privatization. 

The AM on strategic disinvestment comprises the Finance Minister, Minister of Road Transport & Highways Nitin Gadkari, and the minister representing respective administrative department, to decide on the matters relating to terms and conditions of the sale. This is curious, for the Minister of Road Transport & Highways has little to do with disinvestment per se

Earlier, when Atal Bihari Vajpayee was prime minister and genuine privatization did take place under disinvestment minister Arun Shourie, the decision making body was the Cabinet Committee on Disinvestment. It included the heavy industries minister, who was also in-charge of the Department of Public Enterprises. The Road Minister was not a member of the CCD. It is now not because of the nodal nature of the ministry but the rising clout of Gadkari.

What is conspicuous here, however, is the perfunctory manner in which the important issues of PSUs and disinvestment are being addressed by this government. Once again, Niti Aayog has been mandated to prepare a list of PSUs, both profit-making and loss-incurring, to be sold—or to use the official phraseology, ‘to monetize their assets and unlock value to shareholders.’

“Niti Aayog will draw up the list of non-core assets owned by CPSEs which can be sold separately after discussion with a consultative group comprising officials from administrative ministries, Department of Economic Affairs, Department of Investment and Public Asset Management (Dipam),” an official told PTI on March 3.

We said ‘once again’ because in 2016 too, Niti Aayog was tasked to identify the PSUs to be sold off. It found 35 such targets, but one doesn’t know what happened to them.

Meanwhile Dipam, earlier known as the department of disinvestment, several ministries, and PSUs have identified huge tracts of land and other assets of nine PSUs. The nine PSUs are Pawan Hans, Scooters India, Air India, Bharat Pumps & Compressors, Project & Development India Ltd (PDIL), Hindustan Prefab, Hindustan Newsprint, Bridge & Roof Co, and Hindustan Fluorocarbons.

It may be recalled that the government, desperate for revenues, recently took fancy to asset stripping. Afraid to straightforwardly privatize Oil & Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL), it has decided to sell 97 oil and gas fields of the two PSUs. This is privatization by other means.

While privatization is good by any means, the pace and the manner of doing this have been woefully slow and inadequate. 

Worse, the way the government is treating PSUs is deplorable. State-owned oil major Indian Oil Corporation (IOC) has forced to cough up over Rs 1,400 crore by way of a second interim dividend. Since the government holds about 54 per cent in the oil PSU, it will also pocket the amount in the same proportion. ONGC, which was also pressured by the government to release a second interim dividend, was reluctant at first but had to surrender eventually. 

By now it is clear that the slogan “government has no business to be in business” that Modi gave in the run-up to the 2014 general election was to impress business chambers rather than to sell of PSUs. But by not being true to its word, the government has done itself, and the nation, a big disservice. Had it restarted the privatization process in earnest, it would have cut down its expenditure (public sector bank recapitalization itself has cost lakhs of crores to the exchequer) and boosted investor sentiment, thus creating real jobs.

But, alas, that was not to be! So, we are left with Jaitley’s disingenuous statements and lawyerly arguments, pakoda-nomics, joblessness, and ennui.