In its previous incarnation under Vajpayee, the BJP-led NDA [National Democratic Alliance] during 1998-2004 had vigorously pursued “strategic” disinvestment of Union government’s shares in public sector undertakings [PSUs], some of the high profile cases being Modern Food Limited [MFL], Maruti Udyog Limited [MUL], Hindustan Zinc Limited [HZL], Bharat Aluminium Company [BALCO] etc.
The UPA – government which took charge in 2004 abandoned this route even as it sold shares in small lots with the sole aim of garnering resources to meet fiscal deficit target.
The present NDA – regime under Modi may have resurrected the idea as would be evident from a provision of Rs 28,500 crores in the budget for 2015-16 as proceeds from strategic route out of total disinvestment proceeds of Rs 69,500 crores. In budget for 2016-17 also, the finance minister, Arun Jaitely has provided for Rs 20,500 crores to come from strategic dis-investment out of total of Rs 56,500 crores.
But, so far, the outcome has been damp squib. Whereas, during 2015-16, not even a single case of divestment through the strategic route was pursued [in fact, the overall proceeds by itself was less than half of the target], during the current year, at the best, there is a possibility of the government taking up only one such case.
Meanwhile, Jaitely asked NITI Aayog [new incarnation of erstwhile Planning Commission] to come up with options for divestment of government’s equity in PSUs. The Aayog has already submitted two reports viz., (i) one dealing with loss making PSUs and other (ii) for enterprises where strategic sales can be made.
For (i), NITI Aayog has recommended – rightly so – that their assets especially land and buildings [in many cases, these are in prime locations and can fetch tremendous value] should be sold. For category (ii), Aayog opines that the government can get enhance value of profit making undertakings [as also some loss making units] i.e. by bringing in a strategic partner.
Under this concept, the intent is to transfer a sizeable portion of ownership and management control to an investor [call him ‘strategic’ investor] by selling commensurate shares. Apart from much needed capital, such an investor can bring in technology, management skills, intellectual property and other resources that can help transform the way a PSU is run, make it grow faster and enhance its competitiveness in an increasingly challenging world.
What is the extent of divestment viz., 10%, 20%, 25% et al necessary to achieve the desired objective? There cannot be ‘one-size-fits-for-all” approach. The level could vary depending on the area of operation, size of the undertaking, market capitalization, net-worth, profit, potential to grow etc. Both the parties [government and potential investor] can negotiate the specifics including the number of directors on the board and other management committees.
However, on a broader interpretation and application of the concept, strategic divestment would also includes scenario whereby, the government relinquishes majority ownership and control of the PSU by bringing down its equity holding to below 50%. In plain terms, this will tantamount to its privatization.
Where does the government stand in this regard? Will it make any moves in that direction at all? Will it act upon the recommendations of NITI Aayog? To get an idea, it is important to carefully navigate through the mindset of prime minister Modi [a close look at the pronouncements of ministers-in-charge of key ministries may also be helpful to get a sense of which way our policy makers could move].
From the day, Modi took charge in May, 2014, he has been chanting the mantra of ‘minimum government and maximum governance’ to ensure that development is speeded up, state’s financial assistance to the poor reaches fast and in full measure and people’s problems are solved promptly. Towards this end, he has removed bureaucratic hurdles, simplified procedures, streamlined processes and expedited approvals and clearances. Most crucial, in each of these areas, he has put the entire machinery in to e-governance mode.
Modi – dispensation is convinced that the benefits of governance reforms will percolate to PSUs as well. So, when petroleum minister, Dharmendra Pradhan stresses on giving greater flexibility to oil & gas PSUs in their operations, he is signalling that government can achieve the stated objective without having to bring a strategic partner. Likewise, by substantially improving the performance of Coal India Limited [CIL], energy minister, Piyush Goyal has demonstrated that it alone can pull the horse and won’t need a partner.
From the above, one gets a sense that the government may not be inclined to go for strategic sale. If, it feels confident of transforming the concerned PSUs without a strategic partner, why would it look for that option. Forget shedding majority control [that Jaitely has categorically ruled out], there is little chance of it divesting a sizeable chunk of its equity say, 15-20% to a strategic partner.
Likewise, in case of loss making PSUs, concerned ministers have exuded confidence that they can turn them around. Thus,
telecomm minister, Ravi Shankar Prasad has vowed to transform Bharat Sanchar Nigam Limited [BSNL] and Mahanagar Telephone Nigam Limited [MTNL] in to profit making entities. The civil aviation minister is confident that Air India can start generating profits [if only the government can take care of its accumulated debt].
That the government has no intention of pursuing sale of assets [land & building etc] for loss making PSUs is clear from its approach to fertilizer units. Thus, last year, the cabinet approved revival of sick plants of Fertilizer Corporation of India Limited [FCIL] at Sindri [Jharkhand] and Gorakhpur [Uttar Pradesh] besides Barauni [Bihar] of Hindustan Fertilizer Corporation Limited [HFCL]. These plants have been sick for more than 2 decades even as attempts to revive them in the past failed. Yet, the present government is in no mood to relent.
Apart from confidence in its capability to turn around things on its own, the government seems to be in no mood to invite the displeasure of the organizations/entities affiliated to BJP [Bharat Mazdoor Sangh [BMS], for instance] which have vociferously opposed attempts for share sale in PSUs even in small bits. The opposition to stake sale in CIL from trade unions including BMS – by just 10% – is a case in point.
Unwillingness to go for strategic sale would be a tactical blunder. True, good governance and government’s commitment not to interfere in working of the management will help improve the performance of PSUs – both physical and financial. But, the problem of resources and access to technology would still remain. This void can only be filled by inducting a strategic partner.
Modi also needs to consider that the commitment to the autonomy of management will sustain only as along as his government lasts. It cannot be guaranteed eternally. In the event of a change of regime say, in 2019 [or, 2024], this could be thrown to the winds even as political interference and meddling in the affairs of PSUs could stage a come back with vengeance.
On the other hand, if the present government pursues strategic disinvestment seriously [relinquishment of majority control would be still better], resulting in empowerment of the strategic partner as well then, even with some one other than Modi at helm, the undertaking will remain impervious to political interference.
Similarly, today will be a good time to take prompt decisions in regard to sale of assets of PSUs which have been making losses for decades and it makes absolutely no sense to keep them on the ventilator pouring more and more good money yet, without any certainty that they will come in to black.
The government needs to show some extra vision and promptly act on the recommendations of NITI Aayog in regard strategic divestment and selling assets of loss making PSUs.