Economy: Disinvest Judiciously
Along with revival of the economy and restoring investor’s confidence, fiscal consolidation was also in the agenda of the finance minister Shri Arun Jaitley and he assured to bring it down to 3% by the year 2017. Current year budget has set an ambitious target of realising Rs 58,425 Crores from disinvestment to contain the deficit within the targeted level. As per the budget estimates for Financial Year 2014-15, interest and debt service cost has been increased by Rs 46,945 Crores which is approximately 24% of the total expenditure and is putting huge pressure on the government exchequer.
Public Sector Enterprises (PSEs) occupy an important place in the national economies of most countries of the world irrespective of their political orientation and disinvestment of PSEs has always been a matter of debate in India. While the government needs money to meet the funding requirements and for this resorted to disinvestment; this process too drew criticism in our country. It is also argued that government’s stake in the PSEs should not be sold to meet the wages & salaries of government employees as adopting such policies are similar to selling family’s gold to meet short term monetary requirements. The Comptroller and Auditor General of India (CAG) had pulled up both NDA and UPA regime and raised questions over the valuation of the enterprises which were divested. Recent example of the undervaluation of assets is the MMTC Limited—it is the largest foreign trading company in India in which government divested 9.33% stake in 2013. The floor price set for bidding was Rs 60 while the stocks were trading at Rs 211. While it may be necessary for the government to raise money by following the disinvestment route, there are certain factors which should be kept in mind before finalising the plan and end use of the money raised-
1. Purpose of setting PSEs was not only for profit making but they were also expected to assume certain social obligations which impacted their performance and therefore their evaluation should not be done on financial parameters only. They provide employment to 176.09 Lakhs individuals as compared to 119.4 Lakhs in the private sector. Similarly out of the total CSR expenses of top ten companies for 2013, PSEs account for 49% share and therefore non-monetary considerations should also be kept in mind while evaluating their performance.
2. Although there is a fancy phrase that “Government has no business to remain in business” but we must emphasise that PSEs operating in strategic sector should remain under government control. If we are not divesting in a cautious manner then there are chances that in the long run they will fall prey to private monopoly.
3. In the past, the government divested its share in the profit making PSEs
(i.e. Navratna & Maharatna) which are a pioneer in a frontier technology industry. It is always argued that lack of autonomy in the decision making process has plagued the PSEs with inefficiency and going by this logic the government should try to sell the loss making enterprises to ensure infusion of fresh capital by the strategic partner for better management.
Long back the government adopted the strategy of bundling the shares of loss making and profitable entities together but it didn’t work out. If it is coupled with setting the floor price for book building process it can help the government meet funding requirement and can also absolve the government from committing funds for loss making enterprises.
4. There are PSEs which are performing better than their counterparts in the private sector and it is not necessary that a change in guard will always ensure good. We should learn from “Videsh Sanchar Nigam Limited (VSNL)” which shows that only privatisation is not the way to ensure better performance. The government should therefore focus on bringing transparency by giving autonomy and reducing interference of bureaucracy in the decision making process of the enterprises; should encourage professionalism and make the office bearers accountable for their decisions.
5. Various enterprises are having huge cash balance with no investment plans in near future. Government has estimated receipt of Rs 27,815 Crores by way of dividend for the current fiscal which is 2.3% of the total revenue receipts and 13% of the total non-tax revenue receipts. Buyback of shares of cash rich PSEs is also an option to meet the target.
Conclusion
The government is forced to look for alternative options to meet the funding requirements but selling the huge profit making and dividend paying PSEs would result in killing a sheep for one meal only- the other option is feeding it well and getting wool for many years. Even if the government is left with no alternative but to monetise its stake, it should consider bundling of the loss making PSEs along with the profitable ones by setting a minimum floor price at appropriate valuation.
-CA ShshankSaurav
