Seize the moment

STRATEGIC DIVESTMENT : Unwillingness to go for strategic sale would be a tactical blunder. So far, the outcome on this front has been rather disappoin

In its previous incarnation under A B Vajpayee, the BJP-led NDA dispensation (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), Hindustan Zinc Limited (HZL), Bharat Aluminium Company (BALCO) etc. The UPA government which took charge in 2004, abandoned this route. 

The present NDA regime under Modi may have resurrected the idea. Looking at the budget for current and previous year, it would appear so. For these years, Finance Minister Arun Jaitley provided for Rs 28,500 crore (2015-16) and Rs 20,500 crore (2016-17) as proceeds from strategic route out of total divestment proceeds of Rs 69,500 crore and Rs 56,500 crore, respectively.

But, so far, the outcome has been rather disappointing. Whereas, during 2015-16, not even a single case of divestment through strategic route was pursued (in fact, the overall proceeds by itself was less than half of the target), during the current year, at best, there is a possibility of the government taking up only one such case.
Meanwhile, Jaitley asked Niti Aayog 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 undertakings where strategic sales can be made.

In category (i), it has recommended 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) cases, it opines that the government can enhance value by bringing in a strategic partner (this may also include some loss making PSUs). 

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 the much needed capital, he/she 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 should be the extent of divestment – 10%, 20%, 25%? There cannot be “one-size-fits-for-all.” The level could vary depending on the area of operation, size, market capitalisation, net worth, profit, potential to grow etc. In a transformative sense, the government could also relinquish majority ownership and control by reducing its holding to below 50% or privatisation in plain words. So, what is the stance of the government? To get a sense of which way our policy makers could move, it may be worth navigating through the mindset of Prime Minister Narendra Modi.

From the day of taking charge (May 2014), he has been chanting the mantra of ‘minimum government and maximum governance’ to ensure that development is speeded up 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.

Extrapolating from here, Team Modi has a sense that governance reforms will percolate to PSUs as well. If it feels confident of transforming the PSUs concerned without a strategic partner, why would it look for one? Forget shedding majority control (that Jaitley has categorically ruled out), there is little chance of the government divesting a good chunk of its holding say, 15-20% to a single investor.

In the case of loss making PSUs too, driven by the same logic, it seems unlikely that the government would pursue sale of assets. Thus, last year, the cabinet app-roved revival of sick plants of Fertiliser Corporation of India Limited (FCIL) at Sindri (Jharkhand) and Gorakhpur (UP) besides Barauni (Bihar) of Hindustan Fertiliser Corporation Limited (HFCL). These plants have been sick for more than two decades even as attempts to revive them in the past failed. Yet, the government is in no mood to relent.

Apart from the confidence in its capability to turn around things on its own, the government does not want to invite the displeasure of entities affiliated to BJP (Bharatiya Mazdoor Sangh) which have opposed attempts for share sale in PSUs even in small bits. The opposition to stake sale in Coal India Limited (CIL) from trade unions including BMS – by just 10% – is a case in point.

Grant of autonomy

Unwillingness to go for strategic sale would be a tactical blunder. True, good governance and government’s commitment not to interfere in working of management will help improve performance of PSUs. But, 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 ponder that grant of autonomy will sustain only as along as he remains at the helm. It cannot be guaranteed eternally. On the other hand, if the present government pursues strategic disinvestment seriously (relinquishment of majority control would be still better), giving proportionate weightage to the strategic partner (read a private company including MNC) in taking decisions, then even with someone else at the helm, the undertaking will remain impervious to political interference.

Likewise, present will be a good time to take prompt decisions in regard to the 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 should seize the current feel good factor (courtesy, its pro-reform image) and promptly act on the recommendations of Niti Aayog for strategic divestment in PSUs to unlock value and selling assets of those which are beyond redemption.

(The writer is a New Delhi-based policy analyst)