Business Today

A poor policy for the poor

Bibek Debroy        Print Edition: August 21, 2011

The disinvestment target for 2011/12 is Rs 40,000 crore. Since 1991, we have never touched that amount. The best we did was around Rs 15,550 crore in 2003/04. But those were days of strategic sales, when management could be transferred. One could hope to improve the efficiency of Central Public Sector Enterprises, or CPSEs.

The efficiency objective has disappeared, unless competition triggers efficiency. This is doubtful when constraints shackle managerial decisionmaking and prices are administratively determined. Efficiency isn't about equity ownership. Had we unshackled PSEs, equity wouldn't have mattered. But the point is: those shackles cannot be removed while government equity is over 51 per cent. Strategic sales are over now, as signalled by the conversion of the disinvestment ministry into a department.

Bibek Debroy
Bibek Debroy
In any event, strategic sales are non-transparent, almost definitionally. Under UPA-I, barring spillovers from an earlier government (ONGC), sales to employees (IPCL, Maruti Udyog) and sales to public sector financial institutions (Maruti Udyog), nothing significant happened.

Although it isn't proper privatisation, with UPA-II, there has been some semblance of policy. The government will retain 51 per cent. Citizens must own shares (IPOs). A profitable listed CPSE must offload 10 per cent, and another 10 per cent can be offloaded on a case-by-case basis. We have discarded the word privatisation, and now say disinvestment, not divestment.

Disinvestment and divestment are synonymous. Investment adds to productive potential, and disinvestment seems an antithesis. That is, we recognise nothing productive is going on. Efficiency objectives have been overtaken by deficit management, especially when growth and revenue are down and expenditure is increasing.

Setting aside the debate over receipts from asset sales being shown in deficit reduction figures, we got around Rs 23,500 crore in 2009/10 and 2010/11. There was no target in 2009/10, but in 2010/11 it was Rs  40,000 crore. Despite Coal India's success, we didn't touch it, though because of relatively respectable deficit numbers, some disinvestment was postponed to 2011/12.

This fiscal, we have got Rs 1,150 crore till July. Rs 40,000 crore is an unlikely target. Rs 25,000-30,000 crore is plausible. Besides Power Finance Corp., the line-up includes SAIL, ONGC, Hindustan Copper, Rashtriya Ispat Nigam and NBCC.

"An inclusive agenda means proper privatisation of public sector enterprises. Anything else is sleight of hand, even if in the name of the poor"
There are only about 25-odd listed CPSEs. There are almost 150 profitmaking CPSEs, but listing takes time. Policy uncertainty, low growth, high inflation and high interest rates have made markets cagey. Even the government seems concerned about deficit numbers and meeting the target. That's why CPSEs not mentioned earlier, such as BHEL and MMTC, now figure in the disinvestment schedule. There is no option but to use follow-on public offers, or FPOs, in excess of 10 per cent.

But however optimistic one is about the FPOs of ONGC and SAIL, Rs 40,000 crore is a long way off. A rough calculation based on market prices suggests we can expect something like Rs 15,000 crore. There is no obvious way to achieve targets in 2011/12. If listing is pushed through, 2012/13 should be better.

How the Finance Ministry manages deficits is one question. More importantly, when will we remove the selfimposed constraint of prohibiting privatisation? This is unlikely with UPA and its focus. But an inclusive agenda doesn't mean every citizen should own CPSE shares. Constitutionally, every citizen owns CPSEs.

Their inefficiency results in taxes on citizens through opportunity costs of lost physical and social infrastructure. An inclusive agenda means proper privatisation of CPSEs. Anything else is sleight of hand, even if it is in the name of the poor.

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