The sale of 51.11% shareholding of the union government in Hindustan Petroleum Corporation Limited [HPCL] – a public sector undertaking [PSU] in the downstream oil segment – to Oil and Natural Gas Corporation [ONGC] – another PSU in the upstream oil and gas segment is expected to be consummated by January 31, 2018. This is estimated to yield a whopping about Rs 37,000 crores for the exchequer.
Together with Rs 55,000 crores already mobilized: Rs 34,000 crore from sale of share in 24 PSUs [vide buyback offers, initial public offerings and offer for sales]; Rs 17,000 crore from listing of insurance companies like General Insurance Corporation [GIC], National Insurance Company [NIC] and Rs 4,000 crore from sale of holdings in SUUTI [Specified Undertaking of the Unit Trust of India], this will help in garnering over Rs 92,000 crores as divestment proceeds during the current year. This is much in excess of the target of Rs 72,500 crores set in the budget.
This has come as a savior to help rein in fiscal deficit within the target of 3.2% for 2017-18 at a time when the government is facing substantial shortfall in tax collection under GST [Goods and Services Tax] on the one hand and shortfall in other sources of non-tax revenue such as proceeds from sale of telecommunication spectrum, dividend from Reserve Bank of India [RBI] on the other.
But, the big question is whether using proceeds from divestment of shares in PSUs for plugging budget deficit is a desirable practice? Should not efficient running of the undertaking and staying afloat in a competitive environment be the prime objective? Should divestment not be used as a tool to exit from being in the business of running an enterprise? Should the government not focus wholly on governance issues?
Given the continental size of the country and a huge population of about 130 crores, the governance [encapsulating maintenance of law and order, external affairs, ensuring safety of borders, promoting social harmony, delivery of a whole range of public services and building infrastructure such as roads, rails etc] by itself is a whole time affair. The government should give full attention to this even while staying away from doing things which private sector can do.
Further, given complex operations in economic spheres, the governments has a big responsibility for formulating policies and making regulations for orderly conduct and play the role of an arbiter in the event of dispute among stakeholders. From this perspective also and avoid conflict of interest, it is necessary that it does not itself become a party which is inevitable if it also runs enterprises.
Yet, during the initial phases when our policy makers latched on to the mantra of planned economic development, the government had invested heavily in core areas viz, fertilizers, power, steel, oil, gas, coal etc. This was pursued to such absurd limit that the state had made in-roads even in areas such as airlines, hotels, tourism, automobiles etc where it should not have been present in the very first place. As a result, we have a large number of PSUs almost across the entire economic spectrum.
There is an urgent need for the government to exit from many of these areas in the overarching interest of running the concerned undertakings efficiently and in cost effective manner. This is all the more crucial as in a scenario of majority ownership and control remaining with government, there is bound to be interference not only in formulation of policies but also in their day-to-day functioning. Further, decisions get delayed due to bureaucratic red tape.
A bigger problem is due to nepotism and corruption in the bureaucracy and political establishment which often leads to wrong decisions thrust on the managements and resulting huge losses [e.g. acquisition of a disproportionately large number of air-crafts by Air India and its merger with Indian Airlines]. As long as majority control rests with the government, this problem will automatically creep in.
This may have become a non-issue under Modi – dispensation especially in view of this prime minister’s unflinching commitment to ‘zero tolerance’ for corruption. But, there is no guarantee that he will remain in the seat for all time to come. So, why not make the systems impervious to misuse of official position?
For PSUs, this is best achieved by the government relinquishing majority control. Indeed, given that BJP has an absolute majority and Modi has a resounding mandate from the public, he is best positioned to carry out this pending reform. This will also help the undertakings get the best technologies, management skills and expansion of market besides, induction of required capital.
Earlier during its tenure, Modi – government had given an indication of its intent for ‘strategic’ sale in PSUs [though far short of shedding majority control]. In the budget for 2015-16 and 2016-17, it targeted proceeds of Rs 28,500 crores and Rs 20,500 crores respectively from this route. But, this was not reflected on ground zero. During 2015-16, there was not even a single case of divestment through strategic route. For 2016-17, the target itself was reduced to a meager Rs 5500 crores!
During 2017-18 also, there is no strategic sale so far. The sale of shares in HPCL to ONGC cannot be termed as strategic as even after relinquishing 51% holding, the government will continue to be in absolute command by virtue of being majority owner in ONGC. The operations of ONGC/HPCL will continue to be vulnerable to interference by bureaucrats/politicians.
Already, the sale transaction has taken a toll on ONGC as it will have ended up using all its cash reserves of Rs 13,000 crores besides having to borrow heavily to fund the share purchase. In turn, this will have a debilitating effect on its investment in exploration and development of oil and gas fields thereby undermining its ability to increase the level of self-sufficiency in oil and gas.
It is high time, the government changes gears. Instead of using divestment as a tool to bridge fiscal deficit, this should be deployed for serving the larger objective of letting the enterprises run ‘professionally’ and ‘autonomously’ free from state control. It should take a cue from the NDA dispensation under Vajpayee [1998-2004] which had vigorously pursued strategic disinvestment.