UPA graft bleeding public sector
Treating it as milch cow
With the government facing acute financial crunch, it is working hard to meet the target of disinvestment in Public Sector Enterprises (PSEs). It is a disingenuous strategy to dress up public finances, for state-run entities are being used to garner a big amount without effecting fundamental changes in the economy. The need of the hour is privatisation, whereas the government refuses to go beyond minority stake sale.
The government hopes to offload 5 per cent equity in blue-chip oil company Oil & Natural Gas Corporation (ONGC) by December. “All preparations have been completed and the [ONGC] issue is likely to be completed by the third quarter of 2011,” says to a status report prepared by the Department of Disinvestment in the Finance Ministry.
The government wants to sell 427.77 million ONGC shares through the Follow-on Public Offer (FPO). After the FPO, it will hold 69.14 per cent stake in ONGC; at present, it owns 74.14 per cent. While the disinvestment target for 2011-12 is Rs 40,000 crore, the collection has been Rs 1,144 crore from stake sale in Power Finance Corporation. Volatility in the capital market has hit the sell-off programme. This is the reason that divestment in SAIL, the steel maharatna, has been put on hold.
“Timelines for opening the issue would be decided in due course based on improvement in market conditions and advice of BRLMs [book running lead managers]. At current price it may not be advisable to go for the FPO now,” the status report says.
The vagaries of bourses may or may not let the government attain its divestment target, but that is beside the point. The real issue is that the United Progressive Alliance (UPA) regime is using PSEs to unduly raise resources.
When the government led by the Bharatiya Janata Party (BJP) was in office (1998-2004), it had adopted the correct policy towards the public sector. Its Disinvestment Manual (April 2001) rightly pointed out, “Because of the current revenue expenditure on items such as interest payments, wages and salaries of Government employee and subsidiaries, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure. Whereas the Government should be spending on basic education, primary health and family welfare, huge amounts of resources are blocked in several non-strategic sectors such as hotels, trading companies, consultancy companies, textile companies, chemical and pharmaceuticals companies, consumer goods companies, etc.”
Further, it said, the continued existence of PSEs forces “the Government to commit further resources for the sustenance of many non-viable PSEs. The Government continues to expose the taxpayers’ money to risk, which it can readily avoid.”
This was as true 10 years ago as it is now. For instance, the accumulated losses and debt of Air India exceed $20 billion; the PSE airline is losing around $2 billion per year. The taxpayer has already been forced to pump Rs 2,000 crore into the state-run airline; and additional equity support of Rs 1,229 crore is under consideration of a group of ministers. Air India, however, wants more, a total equity infusion of Rs 6,600 crore.
The primary objectives for privatisation, the 2001 manual said, include releasing the large amount of public resources locked up in non-strategic PSEs for redeployment in social and physical infrastructure, stopping further outflow of scarce public resources for sustaining unviable non-strategic PSEs, reducing the public debt, and insulating the taxpayer from the fluctuating fortunes of PSEs.
To this, one may add that more resources at the disposal of the government would help it spruce up internal security and national defence, reform the police system, and carry out judicial reforms. It is indeed a travesty of governance that thousands of crores are wasted on Air India, which is beyond redemption, while much smaller amounts are not available for CCTVs and the essential equipment to check and counter the terror menace.
Soon after coming to power, the UPA discarded the wise and rational public sector policy of the BJP-led government. It replaced reason with ideological rigidities and mindless sloganeering.
(The author is a freelance journalist)