Millennium Post

Centre, PSEs and privatisation

The NDA government seems desperate to dismantle state control over corporations and institutions. With the powerful political combine nearing the mid-term of its five-year tenure before the next Parliamentary elections, the government seems impatient with the age-old economic system that championed the cause of public sector enterprises (PSEs), encouraged the take-over of companies left sick by their private owners, industrialization, workers’ protection and distribution of public savings for economic growth. 

The system is fast losing its importance to the government despite the fact that the economic reform has failed to produce many truly free private outfits and financial institutions since the dawn of liberalization. The free economic policy has not freed the economy from family control and the entrepreneurial quest for quick bucks. India is yet to see many widely held, professionally-managed post-reform Indian private enterprises. The policy of economic reform could not produce another Larsen Toubro and Tata Steel in the country. Yet, the government is hell bent on privatization and selling public assets on the cheap to family concerns, often for their misuse. The economic reform achieved little but for massive FDI and FII inflows that are moving the economy alongside the efforts by trusted professionally-managed PSEs.

Going by the data of the Department of Investment and Public Asset Management, the government has raised Rs.1.91 lakh crore since the economic reform started in 1991-92 from minority stake sales in PSEs alone. One would like to know how do the stake-sale proceeds compare to the government’s investment in those enterprises and where to have all the sale proceeds gone.  The government has also sold its entire stake in some enterprises at throwaway prices to private owners of its choice, including the country’s largest and most diversified petrochemical project under the nameplate of Indian Petrochemical Corporations Limited (IPCL). The sale benefited private owners and contractors several times more than what the government earned. Sale of sick companies – public or private – has always helped new owners make tons of money out of the disposal of their priceless real estate. 

Many private owners have gone for such purchases only for the value of fixed assets. It all started with the sale and development of nationalized sick National Textile Corporation’s (NTC) invaluable real estates in central Mumbai, which now have some of the poshest buildings in the region.

The strategic sale of Videsh Sanchar Nigam Limited (VSNL) to the Tatas gave the private business house probably a bigger and more expensive real estate at prestigious Flora Fountain region in Mumbai. Why did the government do that? How did taxpayers, whose contribution was invested in the project, benefit? Why was BALCO not merged with the Orissa-based public sector company, NALCO? Why is the government repeatedly wasting or underselling public enterprises? The government did not encourage state-owned Hindustan Machine Tools, Indian Drugs and Pharmaceuticals, once the country’s most promising modern drugs manufacturer, Hindustan Antibiotics, National Tyre, Hindustan Cable, and Hindustan Paper, among others, to constantly modernize and expand to maintain their leadership in respective areas of business which have grown several times over the years. For instance, why should companies such as IDPL and Bengal Chemical be allowed to sink or lag when the drug industry in India had grown 15-fold in the last 30 years – from Rs.10,000 crore to Rs.1,50,000 crore – and has emerged as a major exporter of medicines? Why is India’s pharmaceuticals industry still remaining overwhelmingly dependent on China for import of bulk drugs?

No one is against the minority stake sale in PSEs by the government. The latter may even make a majority stake sale in PSEs in favour of public financial institutions or bodies basically to encourage total freedom of management to these companies to do business freely as it is being done in several industrialized countries such as Germany, France, Italy, Spain, the UK and even in the USA. Italy has probably the largest number of leading government sponsored multinational corporations in Europe. They operate like professionally-managed widely-held companies while the government often touts for their international trade and business deals. In India, at least two private sector banks and a financial institution – ICICI, HDFC and HDFC Limited – were initially government sponsored and indirectly nurtured. The India government is free to disinvest any portion of its stake in the public sector and offload them mainly to government controlled institutions to support these development oriented strategic enterprises.

Unfortunately, the government policy towards public enterprises has, of late, remained very unclear. While announcing  the Rs.36,000 crore minority PSE stake sale target for 2016-17, Finance Minister Arun Jaitley said that the government will not go in for blind disinvestment, but work for improving operational and financial efficiency in state-run firms. However, the fact remains that the government has also budgeted Rs 20,500 crore from strategic sale of PSEs during the current financial year and NITI Aayog has been assigned to identify the companies for such strategic sale. A 99-year lease of certain PSEs to private sector bidders is among the options considered. The fear is that such a step may be exploited by private strategic owners to resort to ‘asset stripping’ in those companies, which are sitting on large highly undervalued fixed assets in prime industrial and commercial localities in the country.

(The views expressed are strictly personal)
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