High time to invest in infrastructure

India, without the public sector companies like SAIL, BHEL, GAIL, CIL, NPCL, PGCL, NTPC, ONGC, IOC, NHPC, NMDC, HAL, and HSL among other 200-odd Public Sector Enterprises (PSEs), is worth almost nothing. They have literally built today’s India, supporting the growth of most private enterprises barring a few world-class independent entrepreneur groups, companies, and sectors such as the House of Tatas, Reliance Industries, Aditya Birla group, M&M, L&T, Hero MotoCorps, Bajaj Auto, Infosys, and pharmaceutical biggies. Most of India’s PSEs contributed substantially to the growth of the Banking industry, which is also controlled by public sector banks with two principal exceptions – ICICI and HDFC Banks. The contribution of the country’s public sector enterprises and banks to the making of its $2-trillion GDP is enormous as also overwhelming. It may be time to reinvest and rebuild the public sector and convert immovable assets of sick public sectors into modern and profitable PSEs. All major economies, barring the capitalist US, Japan, Germany, and a few others, are propped up by their state-invested, though not always state controlled, enterprises. The poor growth of India’s industrial sector in recent years is linked with the growth constraints in its public sector.

Of course, there is nothing wrong if the government encashes part of its investments in equity in some of its large and highly profit-making PSEs and banks selling its shares having a  face value of Rs. 10 to secondary investors for only around Rs. 120 or 150. A good number of these PSEs pays an annual dividend of 20 percent or more, mostly for the benefit of their majority and controlling shareholders, namely the government. If they were in the private sector, they would have commanded a minimum multiple of 15 to 20 on their respective earnings per share (EPS). Some listed widely-controlled companies’ scrips are quoted even around 100 multiple of their EPS.  That means the market price of most Listed Indian PSEs would have been above Rs. 300 per share.

Unfortunately, India’s highly speculative equity market is long being controlled by foreign portfolio investors, commonly known as FIIs, who don’t consider these stocks very exciting for speculative gains. The government’s stock market reform in the 1990s was quick to kill the country’s biggest state-controlled dealer in stocks, the Unit Trust of India (UTI), to make the market free for all. PSE stocks are generally projected “good” in the market only for long term investment. The market hammers down PSE stocks as soon as the government and its merchant bankers prepare for government disinvestment in PSE stocks, giving an impression that the concerned parties, including fund managers, merchant bankers, and brokers, are hand-in-glove with each other.

The government has so far collected close to Rs. 2,00,000 crore from disinvestment of its public sector stocks. What did it do with the financial windfall? Did it reinvest in the public sector or in setting up new government enterprises requiring a large investment and long gestation period? Or, did it just swallow the fund to cover annual budget deficits? Sadly, the government, which is earning a lot from profit making PSEs out of annual dividends and disinvestments, has given little back to the sector. The last PSE Greenfield steel plant at Vizag (RINL) was set up over three decades ago.

India continues to have poor infrastructure, especially in the areas such as deep sea ports, roads, and airports, besides lower processing capacity of crude oil and petrochemicals. Unwise decisions by the government to merge its domestic and international airlines (Indian Airlines and Air India) into one without a proper feasibility study, weakening its telecommunications conglomerate into two – BSNL and MTNL -- by turning them into sick enterprises to benefit some foreign controlled private sector rivals, and sell cheaply such important PSEs as IPCL, BALCO, VSNL, and Modern Foods have compromised with national interest. Several existing PSEs are also subjected to operate under “dumping” by countries such as China. SAIL and BHEL are among the worst hit PSEs by “dumping”.

India is nowhere near the economic development of countries such as the US, Japan, Germany, Canada, and South Korea, where the private sector leads the march of growth and development. In China, which has lately emerged as the world’s second economic power in terms of GDP, energy consumption, deep sea port facility, shipping, air transport, steel, coal, telecommunications, defence production, and banking services, the growth has been steered by the state-owned sector while the foreign and domestic private sectors play more in quick consumption areas. Europe’s economic Union (EU) has not been able to upset the indirect public sector ownership of vital industries in countries such as France, Italy, Spain, Portugal, and Sweden. National air carriers, railways, telecommunications system, and postal services are well guarded public enterprises in most countries around the world.

It does not make any economic sense for India to be different at its present development. India’s policy-makers often forget that the world’s second most populous country ranks as low as 10th in terms of national GDP. Countries having less population than some of the Indian states rank higher than India in the global GDP ladder. India would do well by investing, expanding and encouraging its public sector to operate independently to recharge its wheel of national growth and economic prosperity and not sell them to tunnel-visioned private sector to cover the government’s annual budget deficits.