The sale proceeds will be utilised entirely on social sector programmes, including the government’s NREGS and Bharat Nirman

The Government has recently directed Central public sector enterprises to list their shares on the stock exchanges. PSEs already listed will have to increase the size of their public float to at least 10 per cent of their capital. Those not listed so far and have a three year track record of profitability will have to access the capital market for the first time.

Of the 242 Central PSEs, only 46 are now listed. Of these, 12 have less than 10 per cent of their shares on public float. So, in asking listed PSEs to conform to the SEBI norm for a minimum public float and other profitable PSEs to list for the first time the government hopes to garner substantial sums each year by way of capital receipts.

If the programme really gets under way, around Rs. 25, 000 crore may be garnered each year in the near term through sale of shares now held by the government. It needs to be clarified that if every public offer by a PSE need not necessarily involve a stake sale by the government. A government company can mobilise funds on its own for its requirements. In other cases, the government will have to sell its shares under the disinvestment programme.

As for potential receipts for the government from the programme, this year’s budget takes credit for just Rs. 1,120 crore under disinvestment. The budgets of the previous UPA government had all but ignored this important source of funds. The reasons were of course political. Expectations from the programme were considerably lowered. The ministry of disinvestment was wound up.

New approach

The present UPA government has signalled a new start. The Finance Minister’s budget speech outlined a blueprint, as it were. By divesting a portion of its shareholding the government hopes to widen shareholder participation. But its share will not fall below 51 per cent. It follows that privatisation of profitable PSEs is automatically ruled out.

Under the NDA government, strategic sale — where management control was handed over to the buyer of a large chunk of equity shares — was gaining traction. Strident political opposition derailed it and as things stand today thereis no hope of resurrecting strategic sales in the near term.

Realising that the success of the disinvestment programme hinges crucially on wide political consensus, the present UPA government is playing it safe by making resources mobilisation the key objective. The idea is derived from this year’s Economic Survey presented a few days before the budget. It had called for revitalising the disinvestment programme to generate at least Rs. 25,000 crore a year. Among other means, it suggested listing of unlisted PSEs up to 10 per cent of their equity.

Social spending

There has been a conscious attempt at making the programme more palatable. The sale proceeds will be utilised entirely on social sector programmes, including most probably the government’s flagship programmes such as NREGS and Bharat Nirman. Proceeds will still be credited, as before, to the National Investment Fund (NIF) set up in 2005. The difference is that whereas until now only the returns from the fund could be used, the new arrangement earmarks the entire proceeds for social spending.

There would of course be a significant benefit to government finances. The fiscal deficit is estimated at 6.8 per cent of the GDP. The government has promised a return to fiscal consolidation.

Mobilising resources is, in fact, the main justification for this exercise. For the government companies going to the capital market for the first time, there would be several benefits too.

The share market will compel them to adopt corporate governance standards and report their financial position with a greater degree of transparency. Retail investors will also gain. They will have a chance to own quality stocks and participate in the fortunes of the successful PSEs. For now, however, the success of the latest round of the disinvestment programme seems to hinge on the response by way of public subscriptions. That of course is a tricky issue. To begin with, valuations of the public offer will be controversial. In the past, politicians of all hues have found fault with the valuations no matter who certified them.

Right timing of an issue is another difficult task. There would also be trade union opposition. A major source of weakness in public sector disinvestment is however the wavering attitude of successive governments. A programme like this requires continuity and will yield sub-optimal results if turned on and off at will.

The right lessons can never be learnt unless the policy is persisted with even in the face of opposition.

Finally, it will be naive to expect quick results from the latest round. In a procedural sense too, it will take plenty of time for individual PSEs to access the market. Each of them would fare better if it is prepared — corporatised —much before the issue.

The disinvestment programme has to be evaluated over the medium term on certain well laid down parameters. Over the short-term, revenue considerations are paramount.