PSE disinvestment: the obstacles remain

The disinvestment issues continue to be as intractable as before.

By C. R. L. Narasimhan

The public sector disinvestment programme is arguably one of the most contentious economic issues which every government since the early Nineties has had to grapple with. In fact it may be difficult to recall any other economic matter barring perhaps the insurance sector opening up that has proved so irksome. Not just in its conceptualisation but in its execution as well. In fact the modalities of the public sector sale process have seldom been smooth even if some kind of consensus could be arrived earlier at on the need to divest. Furthermore, even after completing a particular round, policy makers have been confronted with a variety of dilemmas for which there are no easy resolutions.

Thus there have been controversies over the timing of a particular sale, its realisation, the appropriation of the sale proceeds ,whether the shares should have been sold abroad or in the domestic capital markets and so on.

Another way to understand the complexities of the PSE sale programme is to look at the shortfalls in the realisations over the recent past. For fiscal 1995-96, Rs. 7,000 crores was budgeted. The actual realisation was just Rs.362 crores. The corresponding figures during the next two years have been: 1996- 97 - budgeted Rs.5,000 crores, realisation Rs.380 crores and 1997-98 Rs.4,800 crores and Rs.912 crores.

Last fiscal (1998-99) was different however with the Government managing to get Rs.774 crores more than the targeted Rs.5,000 crores. That, as everyone knows was not an achievement in any way. The budgetary target was exceeded almost entirely by forcing successful PSEs (mainly those in the oil sector) to ``cross- invest'' in each other. The share swap, as this came to be inappropriately called represented all that could go wrong when the Government decides on financial jugglery at the eleventh hour and cynically calls it disinvestment.

For the current financial year, as against a target of Rs.10,000 crores, the Government is unlikely to realise more than Rs.2,700 crores. Since such massive underachievement has been the rule than the exception, it looks particularly audacious that the budgetary target should remain at the same level of Rs.10,000 crores for 2000-01.In his budget speech, the Finance Minister outlined a four point action plan as part of the public sector policy: restructure and revive potentially viable PSEs; close down units which cannot be revived; bring down government's stake in all non-strategic PSEs to 26 per cent or less; fully protect the interests of the workers.

Much store is set on the newly created Department of Disinvestment as a facilitator to the process, especially in the area of strategic sales (where management control of the unit is handed over along with a chunk of the equity). The strategic sale method has resulted in higher realisations in other countries. In India, however, its efficacy has yet to be tested. Amidst the full glare of publicity, the Indian Airlines privatisation is being attempted through this method. Even earlier, the process of choosing a strategic partner in IPCL had made considerable headway but at the culmination stage ran into rough weather. There is concern that post-divestment there will be a near monopoly if one strategic acquirer, namely Reliance proves successful.

The strategic sale method, more than other methods of privatising government owned units, requires certain ground rules that have to be followed. (In the IPCL case, the need for a competition policy is felt).Again, in common with all other methods, strategic sale requires strong political will. It is here that the Disinvestment Department's role will become crucial.

A few other issues concerning disinvestment have also not been resolved in this country. The utilisation of the receipts is a major point of contention. Mr. Sinha has said that Rs.1,000 crores out of the estimated Rs.10,000 crores this year will be earmarked for retiring public debt and the balance for meeting expenditure in social sectors and restructuring of public sector undertakings.

The practice hitherto has been to treat disinvestment proceeds as capital receipts in the Central Budget. The end use of these cannot be properly identified as they become part of the Consolidated Fund of India. The unit whose shares are sold does not benefit directly. However, if the Government's stake falls below 50 per cent, there is a tangible gain to the unit concerned. Its market valuation will go up substantially.

Can the disinvestment scheme be made more acceptable? To win over concerted opposition, it would be appropriate to earmark the proceeds for specific purposes such as building of social assets such as schools and water supply, says Mr. G. Ganesh, who is an acknowledged authority on the subject. (and was a member of the now disbanded Disinvestment Commission). In all these a clear link must be established so that the benefit of the share sale is seen to be for the common good. According to him, the portion of the sale proceeds that is meant for the restructuring of public sector enterprises can go into a separate restructuring fund which like the oil pool account and the Steel Development Fund will be kept outside the budgetary process.

The suggestion to delink the disinvestment exercise from the budget has merits. However, it is necessary that the exercise of disinvestment is completed within a timeframe, Mr. Ganesh says. At present the connection of the disinvestment process to the budget does set for it a time-table.

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