Sell old PSUs and make new ones

Bharat Jhunjhunwala
Pressured by the striking employees of Coal India, the Union Government has agreed not to denationalize the company and even go slow on disinvestment. The Government is already providing support of Rs 10k crores every year to keep loss making PSUs afloat. A whopping amount of Rs 1.6 lac crores of public money was locked in terms of investment in these PSUs. This would be about Rs 1.30 lacs for each citizen of the country. Every citizen could be provided with a grant of this amount if the PSUs were to be privatized. But the FM seems to be playing a slow game on this as seen in the Government’s backtracking on denationalization of Coal India. Reports indicate that the FM is inclined to privatize mere four numbers of these loss-making PSUs. A marketing and advertizing blitz to invite bidders to privatize even these few units is not on the cards. Fundamentally the FM is inclined to keep the PSUs under the Government umbrella except for few units that are beyond redemption. He hopes to turn the 75-odd loss-making PSUs into profitable ventures.
Simultaneously, the FM has upped the target for receipts from disinvestment of PSUs to Rs 58k crores in the current year. There is a basic difference between privatization and disinvestment. The control of the Company is transferred to the buyer when a PSU is privatized. The Government need not provide any more capital to keep the Company afloat after it is privatized. Disinvestment provides no such relief. Control of the PSU remains in hands of the Government. The Secretaries to the Government continue to appoint the Managing Directors and also the Board of Directors. The Government would still have to bankroll the PSU if required. In the last few years the Government has infused fresh capital in profit-making Public Sector Banks to enable them to meet capital adequacy norms. Disinvestment of part holding in loss-making PSUs provides no relief to the Government from the losses that are incurred.
Indeed there will be some increase in accountability due to disinvestment. Independent directors will be appointed to the Board. Pro-active disclosures will be made as per the listing agreements with the Stock Exchanges. For example, the PSUs will publish quarterly results. The share market will be constantly monitoring the performance of the PSU. There will be a decline in price of share in case of slippage of performance. However, the basic character of the PSUs will remain unchanged despite these improvements because they will continue to be manned by bureaucrats. The Minister and auditors who are supposed to keep the PSUs on track are all part of the same system. More often than not, Ministers have their cronies appointed by the PSUs. No wonder, we have seen many PSUs languishing despite disinvestment.
The basic problem is that ownership of a PSU is diffused and unclear in an anonymous “government.” The personal objectives of owner of a private company coalesces with that of the Company. The owner makes money if the Company makes money. Indeed there are many cases of “vanishing” companies. Unscrupulous businessmen have raised monies from the market and disappeared. But the story ends there. They are never ever able to fleece the market again. They are soon punished by the market. Not so in the Public Sector. A loss making company is provided with more capital by the Government to keep it afloat.
The problem is systemic. Kautilya says in Arthasastra, “Just as it is impossible not to taste the honey or poison that finds itself at the tip of the tongue, so it is impossible for a Government employee not to eat up a part of government revenue. Just as it is not possible to find whether the fish moving under water is drinking water or not, similarly it is not possible to find out how much money the Government employees have embezzled” (2.9). This problem is not surmountable by keeping the PSUs under the Government umbrella.
There are exceptions, however. PSUs like the Bhilai and Durgapur steel plants, and Bharat Heavy Electricals could not be established by private businessmen at those times. They did not have the capital or the risk taking capacity to venture into these pioneering fields. The Government was wholly justified in entering into these areas at that time.
Economists have a concept of “infant industry.” Just as an infant needs to be protected and nurtured till she comes of age; so also PSUs in pioneering areas have to be supported till they become profitable. The need, therefore, is to exit from sectors where private businessmen have developed capacity and enter newly emerging virgin sectors. I would like to give a few examples. There is a huge emerging market in space related ventures. Virgin Galactic tried to enter into this sector and recently met with an unfortunate disaster. A private company may go under in face of such an event. The FM could establish a PSU to make and launch commercial satellites and to organize space journeys. Two, there is a huge emerging market in translations. India can develop the capacity to undertake translations from Japanese to German, for example. The FM could establish a “Global Translation Corporation” to promote this activity. Let this company set up offices in various countries and train translators and secure business. Three, small countries find it difficult to understand and negotiate in multilateral forums like those of the WTO. The FM could establish a “Multilateral Negotiation Assistance Corporation” to provide assistance to small countries. Such a PSU would help us forge friendly relations with these countries and ultimately increase our clout in global affairs. Four, the FM could establish a global media service along the lines of BBC or Russia Today. Let this PSU provide news to the world from the developing country standpoint. Many more such areas could be thought of.
Ajay S Sriram, President of Confederation of Indian Industries has said that the Government must opt for strategic sale rather than disinvestment through stake sale to the public. “I think that strategic sale will give the government better revenue than from mere dilution of shareholding,” he said. The Government can move in the direction of giving management in the hands of experienced corporate to give a bigger push to the growth of that organization, he said. This is the way to go.
There is an urgent role for the Government in emerging areas where private businesses fear to venture. And, there is no role for the Government where private businesses can deliver. The case is not for the Government exiting the PSUs. The case is for a change in sectors where the PSUs operate.

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