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Combat systemic deficiencies

Rogue private enterprises have failed our banks, investors and economy—the privatisation of PSEs needs a relook, for now.

 Nantoo Banerjee |  2018-03-06 15:22:30.0

Combat systemic deficiencies

It is difficult to understand why the government is so hell-bent on privatising the assets of some of the country's most reliable and best performing central public sector enterprises (CPSEs) at such a difficult time, when a very large section of its private companies have failed dozens of state-owned banks, lakhs of investors, creditors and the economy. Private enterprises have robbed government banks of over Rs 11 lakh crore as of September 30, 2017. The list of 'wilful defaulters' is continuously expanding. Individual business tycoons, including Nirav Modi, Mehul Choksi, Vijay Mallya, Jatin Mehta and Lalit Modi, all NRIs, have so far decamped with over Rs 1.11 lakh crore from the banking system. Little is known or reported about the likes of Jatin Mehta, promoter of Winsome Diamonds & Jewellery Ltd and Forever Precious Jewellery & Diamonds Ltd. Mehta owed close to Rs 5,500 crore to the nationalised banks. Reportedly, he is a citizen of St Kitts and Nevis, a tax haven with which India doesn't have an extradition treaty.

Scores of India's large private business enterprises are faced with bankruptcy proceedings while some of their promoters are trying to grab back these assets cheaply on the sly. Nowhere in the civilised world has there been such a long list of habitual bank cheats and defaulters moving freely as they do in India. Bank offenders Nirav Modi and Mehul Choksi say they have no intention to face the CBI or the ED investigation in the near future. Five decades ago, the government was forced to nationalise over two dozen private banks to save them, their innocent depositors and the economy from their rogue private promoters. However, the purpose appeared to have been lost mid-way with a new crop of rogue borrowers starting to eat into these bank assets in close connivance with the top-rank of the bank management and their political bosses. As a result, the authorities failed to save these banks from systematic cheating and exploitation by those private borrowers. The nationalised banks are falling easy prey to India's growing rogue NRI businessmen and merchants. These NRI businessmen don't go to private or international banks to borrow money. They seem to always prefer the government banks. Quizzically, the government is now blaming the Reserve Bank and the audit firms for the despicable financial state of affairs of some of these banks while also continuing to champion the cause of PSE and bank privatisation.
Over the years, CPSEs proved to be a major strength for India's economy and its continued growth. This is despite the fact that their political masters spared no opportunity to extract substantial money from the top CPSE management out of the inflated project cost sanctioned, from time to time, by the project investment board (PIB) and the union cabinet. Allegedly, top PSE jobs often came for a price. Yet, few in the private sector could match the might of such CPSEs as NTPC, ONGC Limited, IOC, SAIL, BHEL, CIL, GAIL and BPCL among several others. They are national corporate assets. These PSEs have also been the safest bet for their lenders, the nationalised banks. Their controlling shares belong to the nation and not to any short-term elected government. Arguably, they should not be allowed to become an easy target of privatisation by any government to cover their budget deficits or for other purposes. They should be allowed to run independent of government interference to help create more assets for themselves, the nation and their bankers. Any attempt to privatise such PSEs needs to be nationally debated since they all are strategic assets. During the Atal Behari Vajpayee government, two of such priceless assets — IPCL and Balco — were cheaply handed over to Mukesh Ambani's RIL and NRI Anil Agarwal's Vedanta. How did that help the nation? Unfortunately, India's private sector enterprises were mostly focussed on making quick gains instead of chasing individual excellence in the face of global competition.
In fact, global competition has rarely helped India's private enterprises bring their best unlike in other parts of Asia like Japan, China, South Korea, Indonesia, Malaysia and Singapore. Manufacturing activities in India's private sector seem to be shrinking in the face of global competition. Instead, the services sectors, merchandising and trading in imported products and brands are booming thereby, adding to the GDP. It is a matter of concern that the capital expenditure (Capex) in India's homegrown private sector manufacturing industry has hit nearly a 30-year low, barring a few enterprises such as Reliance Industries, Tata Consultancy (TCS), Tata Motors, Tata Steel, Mahindra & Mahindra, Larsen & Toubro, Hero Motors, ITC, Ultra-tech Cement. Fresh investments by the corporate sector hit a new low in 2016-17. The combined capital expenditure by the country's top 1,000 non-financial firms, in terms of revenue, was up just 5.8 per cent in FY17, growing at the slowest pace since 1992.
In all these, the top 1,000 companies made fresh investments of Rs 2.07 lakh crore in the last fiscal year, down from Rs 2.9 lakh crore in FY16. An analysis of a common sample of listed companies suggests that the investment drought is being led by domestic private enterprises. The combined Capex by listed Indian private companies grew at a record low of 5 per cent in FY17, as against 9.4 per cent growth by listed CPSEs and 5.3 per cent by Indian subsidiaries of global multinationals (MNCs). The incremental Capex by listed private sector companies nearly halved to around Rs 1.1 lakh crore in the last fiscal, against Rs 2.15 lakh crore a year ago.
CPSEs seem to have been the least impacted by the slowdown, while MNCs reported an uptick in their Capex growth— though their investments are comparatively too small. CPSEs have been a great asset to India's state-owned banking sector. They have also been raising cheaper funds from international institutions. Their high credit ratings have been an attraction to overseas investors in debts. They have not defaulted on debt repayment to creditors—local and multinational. There is no reason why the government should continuously look for PSE privatisation under the present circumstances.
(The views expressed are strictly personal.)

Nantoo Banerjee

Nantoo Banerjee

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