#dnaEdit: Policy puzzle

Disinvestment has been the buzz word ever since India half-heartedly took to the economic reforms. The plan was to get rid of the State-owned businesses because it was proclaimed that business is not the business of the State. But in practice, it has not been possible to pursue an aggressive disinvestment policy because it became evident that it was an imprudent thing to do in purely business terms. The issue is also complicated because the market is not ready to soak up the PSU assets at a particular moment. There are two reasons for disinvesting in public sector undertakings (PSUs). Privatisation or a sell-off of the PSUs is favoured by doctrinaire free-market proponents, but it has been found to be impracticable, apart from its economic unfeasibility. The sale price is unlikely to reflect the asset value of a PSU. The other reason for the government to disinvest in PSUs is to contain its fiscal deficit.

It is not clear what was uppermost in the BJP-led NDA government’s decision to disinvest part of the government shares in three of the big PSUs — the National Hydroelectric Power Corporation Ltd (NHPCL), the Coal India Ltd (CIL) and the Oil and Natural Gas Corporation Ltd (ONGC) — and the expectation is that this will mop up about Rs42,000 crore. This figure cannot be taken as given because it depends on how much of the disinvestment the government will be able to accomplish, which in turn will depend on the mood in the market. We have seen on earlier occasions that government could not meet the projected figure through disinvestment. 

There is also no clarity on the part of the government what it wants to do with the money realised through disinvestment. During NDA-I of 1999-2004, the government of the day was forced to state in response to the pressure exerted by then defence minister George Fernandes that there will be a disinvestment fund. And that it will be used to revive the sick PSUs. The ideal thing would be for the government to let the respective PSUs whose shares have been disinvested to plough back the money raised for their own expansion, innovation needs.

It is interesting that the disinvestment decisions will reduce the government holdings in NHPC to 74.60 per cent after deciding to sell off 11.6 per cent of its shares, in CIL to 79.65 per cent after shedding 10 per cent of the shares and in the ONGC to 68.94 per cent after reducing 5 per cent of shares. It has been stated that this will be in compliance with the direction of the Securities and Exchange Board of India (SEBI)  that the central public sector undertakings (CPSUs) should have 25 per cent public shareholders. The SEBI directive is an interesting redefinition of what a PSU should be, but it will be a reality only when members of the general public and not private financial institutions are able to buy the shares which the government has now put on offer.  

Whether the government will be able to offload its shares in the market, and whether ordinary people will be able to buy them are important in themselves, and they need to be monitored closely. The cabinet decision on disinvestment is merely a declaration of intent. But it should not be confused with policy. This is a business move on the part of the government.  It is necessary for the government now to declare its disinvestment policy, if they have one.