Getting rid of white elephants. Review on Ministry of Divestment

When India got her independence in 1947, there was hardly any industrialisation which prompted the then Prime Minister, Pt. Jawahar Lal Nehru, an out and out believer in socialism, to think that for India to become a developed nation, there was a need to set up large scale industries, especially in critical sectors like Steel, Power, Oil, etc. so that they would provide a steady platform for modern India to thrive. It was with the above intention in mind that the Government took the forced initiative to set up various companies across different sectors. While most companies which cropped up during that time were owned by the Government, private sector participation was gradually allowed in certain sectors like Power and Steel.

What is Divestment?

Divestment or Disinvestment, as a term, connotes the process of selling off the controlling (majority) stake by the Government, of its investments in Public Sector Units (PSUs) to private companies.

Over a period of time, these private sector companies did well and soon upstaged their elder brothers in the public sector. The PSUs, in the meantime, were being bogged down by various factors like inefficient management, inability to adapt to the changing economic and market scenario and excessive Government interference which prompted the Government to seriously consider disposing them to the private players. These “White Elephants” were soon incurring huge losses that necessitated the Government to step in time and again with generous grants of funds from the budget and the idea of seriously disinvesting these PSUs cropped up around the late 1990’s when, in the midst of a severe economic crisis, the Government finally decided that it was no longer feasible to continue providing life support systems to them.

As of March 2001, the total Government investments in about 240 PSUs aggregated more than Rs. 1,10,000 crores. Of these, the profit-making companies were around 120-130 in number while the others were all loss-making, with the disease being severely chronic and incurable in most cases. This gave successive Finance Ministers a new topic to add to in their annual Budget speeches – “Disinvestment of PSUs”. The main benefit from disinvestment is that apart from unlocking investments in non-productive assets, this amount can be productively utilised for investing in infrastructure projects so that they lead to a higher growth in the economy. While the very idea raised a lot of hopes about the Government’s intention to exit from these enterprises, hardly anything was done in this regard till sometime last year. The progress of disinvestment in India has been a tad too slow considering the giant strides that other developing countries made by transferring productive assets to private investors, especially in infrastructure (power, telecommunications and oil).

What is the current status?

Incidentally a separate Disinvestment Commission was set up by the then Finance Minister, Mr. P. Chidambaram in 1996 and the same has been converted into a full-fledged ministry (with Mr. Arun Shourie as the Divestment Minister) to specifically identify the sick and unviable units in the public sector and propose ways and means to sell them, either in part or in full to private players. Mr. Yashwant Sinha, during the course of his budget speech last year announced ambitious plans and pegged the disinvestment receipts at around Rs. 12,000 crore inspite of the Government falling well short of its announced targets of Rs. 10,000 crores in the previous two years.

After much humming and hawing, the Government finally managed to make some concrete progress in the current fiscal by selling 51% stake sale in Bharat Aluminium Company (BALCO) to Sterlite Industries despite strong opposition from the Chattisgarh Government, 51% stake in CMC to TCS, 74% stake in Hindustan Teleprinters to HFCL, 74% stake in Paradeep Phosphates to Zuari Maroc Phosphates and more recently a 25% stake in Videsh Sanchar Nigam Ltd. (VSNL) and around 34% stake in IBP to the Indian Oil Corporation (IOCL) and the Tata Group respectively. It also managed to dispose some of the hotel properties hitherto under the control of Hotels Corporation of India (HCI). For the year 1999-2000 the Government was able to sell only Modern Foods to Hindustan Lever Ltd., which netted around Rs. 105 crores as against announcing its decision to garner Rs. 10,000 crores!

The experience in disinvestment of PSU shares in India is not without its usual quota of political comedies and dramas. Mr. Arun Shourie and his coterie have been finding it difficult to tackle the triad of recalcitrant “netas”, the bureaucratic “babus” and astigmatic trade unions which threaten to resort to disruptive blackmail and large-scale strikes at the drop of a hat. It is on account of these impediments that the relevant authorities take such a long time in deciding the disinvestment strategy of a particular company that by the time the proposal actually crosses all the political and bureaucratic hurdles, either the scrip value of the company gets eroded or the prospective suitors find the proposition not encouraging enough to build on capacity or execute expansion plans. On the other hand, we also have the opposition parties raising a hue and cry alleging that privatising the PSUs would lead to large scale retrenchment and layoff of the employees of these units (as though they are sincerely concerned about the welfare of these poor chaps!)

It has now become a common sight to see the Government sleeping on the disinvestment proposals for the first 9 months of the fiscal year and wake from their deep slumber only around December/January when the budget preparation exercise begins. It really doesn’t matter whether it was the United Front or the Congress in the past or the BJP in the present. politicians are politicians...always politicians. The urgency of disinvesting the PSUs dawns in their minds only when they realise that they are running well short of their budgeted receipts of the year and therefore desperately want to sell some PSU undertakings and bridge the fiscal deficit to whatever extent possible.

Due credit however, to Mr. Yashwant Sinha and his ministerial colleagues for having woken up in the midst of winter when they usually hibernate, and successfully disinvesting IBP, VSNL, CMC, etc. so far this year. Out of the total budgeted receipts of Rs. 12,000 from disinvestment in the current year, the Government has already realised Rs. 7,000 crores (including a generous “special dividend” of Rs. 2500 crores from VSNL). Some of the other PSUs lined up for disinvestment before March 2002 are Hindustan Zinc Ltd., IPCL, HPCL, some hotels of ITDC, Maruti Udyog Ltd., JESSOPS and Hindustan Newsprint. Going by the flurry of recent activities, the Government seems to be going in the right direction while we can only hope that a good financial gain for these are not sacrificed at the altar of pejorative political compulsions.