A decade after privatisation of central public sector enterprises (CPSEs) was put on the back burner, the government has come out with a comprehensive policy to take up strategic sale more aggressively in the next fiscal. 

 

The history of disinvestment can be traced back to 1996 when the first disinvestment commission was set up. But it was only the Atal Bihari Vajpayee-led NDA government (1999-2004) which aggressively did strategic sale, selling 18 ITDC hotels and also privatising many other PSEs including Videsh Sanchar Nigam Limited (VSNL) and Bharat Aluminium Company Limited (BALCO).  

 

The disinvestment policy completely changed when the UPA came to power in 2004. And for the next 10 years they pursued only minority stake sale.

Even NDA in its present term has not been able to privatise any CPSE because there has been no clear policy on strategic sale (where equity is divested along with the management control).

 

To get the government out of running many CPSEs, the finance minister in the union budget 2016-17 has proposed certain changes in the way the department of disinvestment functions.

 

The process of disinvestment will now be overseen by an independent external monitor. NITI Aayog has been roped in to identify CPSEs where the government should give up its management control or to what extent they should divest and what should be the mode of disinvestment followed. It will then give recommendations on strategic sale to a core group of secretaries, headed by the cabinet secretary. This group will make final suggestions to the cabinet committee on economic affairs. At present, the department of disinvestment (DoD), under the ministry of finance, is tasked with pursuing strategic disinvestment. 

 

Market analysts see strategic sale (sale of stake to private companies or complete privatisation) as a good alternative in times of volatile market conditions. They say strategic sale can send a very strong message in the market and it will also fulfill the prime minister’s vision of ‘minimum government and maximum governance’. Pranav Haldea, managing director, Prime Database, which compiles data on capital markets and related matters, says, “The government has no business of staying in most of the businesses. The decision of aggressive strategic sale will send out positive signals. It is independent of the market and will get them much higher premium over the current stock price, fulfilling the government’s objectives from monetary terms.” 

 

While this is seen as a strong action by the government on privatisation of public sector undertakings, industry experts doubt the choice of of NITI Aayog for the task. 

 

Sanjeev Ahluwalia, former joint secretary of the DoD, asks what a three-member NITI Aayog can contribute, which the DoD or the ministry of finance was not able to. Calling it a sector specific job, he says even a well-staffed planning commission never entered this sector. “My impression was that they [NITI Aayog] would be thinkers who would publicise their thoughts [on various policies] for state and central governments to adopt them. They do not have domain expertise to handle this job,” he adds.

 

Ahluwalia says NITI Aayog can only provide an umbrella of protection to the disinvestment department. “They have no financial expertise in terms of investment banking. Even the department of disinvestment hires the best investment bankers to take care of the entire process. NITI Aayog is also going to take lessons from them. So the only thing that the Aayog can do is to give an umbrella of protection so that no single person can be blamed for any wrong decision made.” 

 

In 2016-17, the government plans to raise Rs 56,500 crore through disinvestment. Of this, Rs 36,000 crore will be raised through minority stake sale and Rs 20,500 crore through strategic sales. 

 

RS Sharma, former chairman and managing director, ONGC, says strategic sale is more complicated than simple disinvestment. “There have been allegations and serious charges against strategic sale that have taken place under the previous NDA regime,” he adds. 

 

He says arriving at the right value of a company becomes a major issue in case of strategic sale. “I am worried about the same fate,” he adds. 

 

While NITI Aayog has been brought into picture to have a uniform policy, Sharma says to what extent they will be able to achieve it is a big question. 

 

“It is not a paradigm shift (in the policy). It is just giving new clothes to an old policy and it does not make any dynamic change. The road-map is still unclear. The government will also ask companies to sell off their assets. The problem is whenever stake in a particular company has to be divested we keep looking at the market. The government should just focus on following a transparent process and not look for making the best money out of it,” says Sharma. 

 

Ahluwalia, who is hopeful that the government would be able to achieve the disinvestment target in the next fiscal, says inevitably the problem is how disinvestment is seen in India. “We think of disinvestment from the prospective of raising money, but actually this is the least important part of the whole process. Money can be raised. But it also liberates the company from the strangle hold of the government.”

 

Surajit Mazumdar, professor of economics at Jawaharlal Nehru University, says the practical difficulties faced in disinvestment arise out of the nature of the process itself. 

 

And bringing in the NITI Aayog into the picture appears to be simply a way of trying to secure legitimacy for the process. 

 

“The question is what will be the real nature of that which takes place behind that cloak of legitimacy,” he asks.

 

He says what is needed in the current juncture is public investment rather than disinvestment since private investment is neither growing rapidly nor addressing all the varied requirements of the country’s development.

 

“Disinvestment and privatisation in general also tend to facilitate concentrated private control over economic resources. Strategic sales have even more of such a character because they explicitly involve transfer of management control to private hands. 

 

The potential for patronage and corruption are thus also greater. This is the bigger picture that one may miss out on if one concentrates solely on ‘performance’ of companies.”

 

While there is no doubt that PSEs have seen major growth over the years, the need of the hour is to initiate the next phase of public sector reforms.

 

With the government owning a substantial stake in these companies, it dilutes the independence of the board, thereby affecting their business. 

 

These proposed changes can improve the efficiency of public sector enterprises and can act as an instrument in bringing major reforms only if it is implemented appropriately keeping in mind the larger objective.