Feb 8, 1999
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PRIVATISATION Upping the Stakes The PM takes charge of the disinvestment programme in an attempt to remove the political bottlenecks of the past--and reduce a ballooning fiscal deficit. By Shefali Rekhi It hasn't shifted to a high gear yet but the Government's public sector disinvestment programme is gradually picking up speed. Last month, the Cabinet Committee on Disinvestment (CCD) headed by Prime Minister Atal Bihari Vajpayee allowed certain public sector undertakings (PSUs) to buy back their shares from the government or pick up stake in other PSUs. While Mahanagar Telephone Nigam Limited and Videsh Sanchar Nigam Limited were allowed to buy back their shares, Gas Authority of India Limited and Indian Oil Corporation were permitted to pick up a minority stake in Oil & Natural Gas Corporation. The sale may help the Government meet its 1998-1999 disinvestment target of Rs 5,000 crore -- even exceed it by nearly Rs 2,000 crore. That would be a massive improvement over the past. In 1995-96, when the government had set a disinvestment target of Rs 7,000 crore, all it realised was a paltry Rs 168 crore. In 1996-97, as against a target of Rs 5,000 crore, all it could net was Rs 379 crore. And in 1997-98, when the target was set at Rs 4,800 crore, only Rs 906 crore was realised. The quantum jump in the sale proceeds from the buyback deals are expected to nuetralise some of the problems posed by falling revenue collections and put Finance Minister Yashwant Sinha's budget projections back on track.
However, many experts feel that the buyback deals are just efforts at window-dressing meant to keep the fiscal deficit under check. They feel that keeping the deficit down should not be the objective of the disinvestment programme. Also, they point out that the buybacks will erode PSU reserves and prevent them from financing new projects. Says Suresh Tendulkar, professor at the Delhi School of Economics: "Till the deficit remains your key concern, it is not going to help the PSUs. In any case, you are merely camouflaging the fiscal deficit." That's a valid point considering that in recent years successive governments have failed to pursue privatisation in its true spirit. Disinvestment is seen as an attempt to sell the family silver and is used only as a face-saving measure to prevent the fiscal deficit from getting out of control. As a result, not a single PSU has been truly privatised. Not surprisingly, PSUs in general continue to be a drag on the economy, offering a return of a mere 5.1 per cent on an investment of Rs 193,121 crore (1996-97 results). The ratio of net profit to sales is an abysmal 4.5 per cent compared to 6 per cent in the private sector. Worse, 104 of the 242 Central PSUs are making losses and 64 of them are sick. "Public sector reforms announced two or three years ago are yet to be implemented," points out Power Finance Corporation Chairman Uddesh Kohli, who also heads the Standing Conference on Public Sector Enterprises. Former industry minister Murasoli Maran had promised financial and operational autonomy to the top 11 PSUs -- or navratnas. But he slipped in a pre-condition that they couldn't exercise autonomous powers till the non-official board members had been appointed. Till now only three PSUs -- Bharat Heavy Electricals Limited, National Thermal Power Corporation and Indian Petrochemicals Corporation Limited -- have qualified for that autonomy. The others still await a nod from either the administrative ministry or the Cabinet Committee on Appointments. The 35 lesser PSUs -- or mini-ratnas -- are in the same boat. Only two or three have qualified for the partial autonomy the Government is willing to grant. Maran also tried to reduce the control of the government over the PSUs. But though 696 of the 892 guidelines governing the functioning of PSUs have been deleted, the government continues to be a backseat driver. Says Kohli: "80 per cent of these guidelines were anyway redundant. But some which were the real irritants are coming back in the form of instructions. For instance, some ministries are asking PSUs to get clearances for all foreign travel, irrespective of the level of the officer." In 1997, the N. Vittal Committee on PSU reforms had identified 66 other guidelines that ought to be removed for any semblance of autonomy. But these are still in force. When he took over as finance minister, Sinha also attempted to introduce PSU reforms. The most significant was the move to wind up some of the ailing PSUs. But there is a wide gap between what Sinha had proposed and what has really been achieved. Though global advisors have been appointed for the strategic sale of four PSUs, none is near finalisation. A restructuring fund is still in conceptual stages and of the eight sick PSUs identified for closure, a liquidator has been appointed only for the Kanpur-based Tannery & Footwear Corporation. The rest remain a drag on the exchequer. However, to facilitate the closure of the other PSUs the Government has decided to fork out Rs 517 crore as voluntary retirement compensation to the 11,000 employees. The decision is significant because in case of a closure, workers are entitled to only retrenchment compensation (15 days' pay for every year of service) whereas the voluntary retirement compensation is higher (45 days' pay for every year of service). This signals a fresh pragmatic approach to the issue of PSU reforms. More importantly, it indicates that the Vajpayee Government is determined to push ahead with privatisation. |
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If that happens, much of
the credit would belong to Vajpayee who pressed the accelerator of the privatisation
bandwagon. Tired of the tardy progress in the privatisation programme, Vajpayee had
instituted the high-powered CCD under his direct control in January this year. Some
believe this move could be the harbinger of change. Says G.V. Ramakrishna, chairman of the
Disinvestment Commission: "We are hoping that at least now the Government will
expedite decisions and carefully consider our suggestions." 
