Although the moratorium that the United Progressive Alliance government had placed on strategic sales in 2009 has been lifted, it is quite evident that Prime Minister Narendra Modi is not planning to emulate British Prime Minister Margaret Thatcher. With the conviction that government has no business to be in business, she had led the United Kingdom, in the 1980s, to privatise 670 of its public sector companies.
If Thatcherite privatisation was about exiting business through a transfer of state assets and companies to private ownership, the new disinvestment policy Mr. Modi’s cabinet approved in February is bound to increase government control over public sector companies.
The intention of the policy is not to shrink the public sector but to rejig it so that assets, including land and cash balances, of government companies can be hived off and used for investment in new projects. The renaming of the Department of Disinvestment as the “Department of Investment and Public Asset Management” reflects the new thinking.
To increase efficiencyThe BJP-led NDA government is pursuing disinvestment, NITI (National Institution for Transforming India) Aayog member Bibek Debroy told The Hindu , not to vacate the public sector, but to increase its efficiency. If a government company is profitable without subsidies while competing with private firms, then why should government exit, he argues. According to him, the new disinvestment mantra is to reduce interference, allow public sector enterprises to function along commercial principles by granting managerial independence in decision-making, such as in appointments.
He makes an “important pedantic” distinction between privatisation and disinvestment: “While sales of stakes greater than 50 per cent, perhaps even 100 per cent, is privatisation, any tinkering here and there is disinvestment”.
The government set a new record in “tinkering” with disinvestment in the last financial year, 2015-16, by raising Rs.32,148.80 crore.
No government companies were sold to private sector owners. The government did not give up its control over a single public sector company. It merely offloaded a few shares in a handful of companies, mainly through the stock market, where many of the buyers picking up the divested shares were from the public sector — public sector banks, the Life Insurance Corporation of India or other government companies. The divested companies remain state-owned and government control over them undiluted.
In fact, since 1991, over 90 per cent of disinvestment receipts, of over Rs.2 lakh crore, have come from such piecemeal disinvestment.
All privatisations so far, except Modern Foods, happened during the tenure of Arun Shourie as Disinvestment Minister in the Atal Bihari Vajpayee’s National Democratic Alliance government.
Bureaucracy unenthusiasticNot all of these are controversy-free. In 2006, the Comptroller and Auditor General of India — in more than one report — pointed to serious shortcomings in the sales processes. Two years ago, the Central Bureau of Investigation (CBI) registered a case against, among others, former Disinvestment Secretary Pradip Baijal for the sale of the Indian Tourism Development Corporation’s Laxmi Vilas Palace hotel in Udaipur.
Whatever the final outcome of the probe, the damage has been done. Bureaucrats have got cold feet over strategic sales. In a corrective step, Mr. Modi’s new disinvestment policy provides for land to be valued at market price for inclusion in sales. NITI Aayog is set to bring out fresh recommendations about loss-making units that can be sold, their assets valued and disposed of, and possible strategic sales.
That the task of identifying candidates for strategic sales and of reframing of the policy objective itself got farmed out to NITI Aayog, the government’s think tank confirms that bureaucrats have little stomach for outright sales.
Adding to their discomfort is a potential legal hurdle. In January, the Supreme Court gave directions to the government to put on hold plans to offload its residual 29 per cent share in Hindustan Zinc Ltd., an erstwhile public sector company and a subsidiary of Vedanta since 2003 and advised the government against proceeding on the sale without seeking parliamentary sanction. Officials are worried that this can apply to past and future disinvestments of all companies that were nationalised under legislation of Parliament.
Fiscal pressuresThe disinvestment targets too suggest that it is a government caught between caution and the pressures of fiscal goals; not one striving to exit business. Of the disinvestment target of Rs.56,500 crore for this year, Rs.36,000 crore is to be raised from small sales, which are safer, but which do not dilute government control.
Financial parameters of government companies, such as borrowings and operating profits, are being closely monitored to identify possibilities of share buybacks, a new kind of disinvestment officials have recently come up with.
In the first of these, on March 30, the CMD of Hindustan Aeronautics Ltd. handed a cheque for Rs.4,284.37 crore to Defence Minister Manohar Parrikar. On the same day, the government received Rs.198.85 crore from Bharat Dynamics Ltd.
Money changed hands — it went from the two public sector units to the government. The government companies bought some of their shares from their owner, the government. The only effective change is that money which was on the companies’ books is now in the government’s account under the head “Disinvestment Receipts”.
According to one estimate, the top 30 public sector companies hold more than Rs.1.5 lakh crore in cash and bank balances, which the government has realised is sitting idle. Government companies are being prodded to dip into their reserves — either to invest in growth-generating projects or to float shares buybacks. The buybacks are a bit like the left hand buying what the right hand is selling, Mr. Debroy says.
The government is taking money out of one pocket and putting it in another—and getting richer. It’s not magic. It’s not privatisation. It’s disinvestment.
puja.mehra@thehindu.co.in
