A balanced strategy towards disinvestment is required and a more focused approach is needed for loss-making ventures as compared to the profitable ones where government is able to generate some returns on the investment
Shshank Saurav
Last year there was a buzz that the Modi Government has turned around the fortunes of national carrier Air India and the airline has started operating profit after a decade. Though this financial performance was primarily on account of reduced jet fuel prices but it was such an important achievement that even Prime Minister Modi mentioned this in his Independence Day speech.
Few days back cabinet gave in-principle approval for disinvestment of Air India and it was quite surprising that all of a sudden government decided to sell the stake of an entity about which it was claimed that its fortunes have been changed in the regime of NDA Government. A Public Sector Undertaking (PSU) is expected to achieve lot of objectives and profitability can’t be the only criteria for their performance evaluation but the case of Air India is entirely different. The carrier is neither operating in any priority sector nor it is meant to achieve any strategic objective. This decision of divestment was something which was needed because as a nation we can’t afford the public money to go to drain for something which is irrelevant for common man at large.
India adopted a socialist model under the leadership of Jawaharlal Nehru and some of the key sectors were kept under government control. There was nothing wrong in the policy which we adopted after Independence because we were an underdeveloped nation and public investment was the only option for economic development. Some strategic objectives like self-sustainability, employment generation, removing geographical disparity in economic development etc. were also desired to be achieved out of the said socialist model. Nationalisation of Air India was part of the socialist economic agenda wherein thrust was over the government control in all key sectors (later on banks were also nationalised in 1960s).
There could be various reasons behind the failure of the national carrier which was once profitable. From gradual shrinking of market share to comparatively higher operational cost can be the main reason behind failure of Air India but there are few questions which should be answered by those who are sitting at the helm of affairs.A loan of more than Rs 55,000 crore and accumulated loss of more than Rs 50,000 crore is not the result of something which happened during a day. In 2012 the then UPA Government approved a nine-year revival plan and even cash was infused in the form of equity contribution but the airline was not able to turn its fate. The operational profit which was shown in financial year 2015-16 was mainly due to reduced jet fuel prices.
After discussing and understanding the fact that bureaucrats occupying the offices of PSUs are unable to add any value which is visible in the form of quantifiable numbers, next question arises is till what time and up-to what extent we will continue to support the enterprises which have become white elephants. There could be some
specific areas where ‘monetary conditions and financial performance’ is not the parameter for evaluation (e.g. PSUs operating in the area of defence, atomic power etc.) but government should consider getting rid of the responsibility in respect of those entities where there is very little hope of revival. It is important to do so because firstly the losses are borne by the public exchequer and secondly the evaluation of the loss making entity declines with every passing day. Net assets value of Air India in 2012 would have been much higher as compared to what the government can expect now.
If we visit the list of PSUs in which government sold its stake, we will find that most of them were profitable and those were cash cows having positive net-worth and positive cash-flows. There is no rationale behind bearing the burden of loss-making entities and selling out the profitable business. Economists who advocate disinvestment/strategic sale of public sector enterprises and link it with economic liberalisation should be asked why no businessman is interested in buying the loss making undertakings. People argue that government has no business to be in business but they fail to answer a simple question why we expect the government to sell the profitable ventures only and why the private sector is least interested in taking the ownership of loss-making entities even when the stake sale of such entities is bundled along with profitable entities also.
There is a serious pattern which has developed over the recent years in which PSUs which are categorised as Maharatna have become loss making (e.g. SAIL, BHEL etc.). In most of the cases PSUs are making losses even in those sectors where private players are making good profit and it shows that there is something wrong with the way these entities are managed. State run telecom service providers like BSNL/MTNL once held the numero-unoposition but all thanks to the competitiveness of PSEs, now these entities are bleeding badly after private players went into expansion mode. Despite having a pan India license (i.e. license in all telecom circles) and abundance of spectrum, failure of BSNL/MTNL is epitome of lack of competitiveness in PSUs. Needless to say that when political inclination instead of having any professional background becomes the criteria for appointment on the board of PSEs then such results are bound to happen.
Barring few sectors government should move ahead with the strategic sale of loss making PSUs with certain conditions attached to the stake sale. For example if providing the last mile connectivity is the reason behind continuing the show at BSNL/MTNL then it can be achieved even after disinvestment of these
undertakings by simply putting a condition
relating to it in the
offer document.
A balanced strategy towards disinvestment is required and more focused approach is needed for loss making entities as compared to the profitable ones where government is able to generate some return on the investment. Sale out of entities like Air India, BSNL etc. will not only reduce the stress on public finance and make that resource available for some better purpose but also help the government to reduce the budget deficit in two ways (viz. sale proceeds and non-allocation of funds to meet the operational requirements). Apart from this the more the stake sale is delayed for such entities, the less the government will be able to monetise. On the other hand selling out the profitable entities just for meeting the deficit targets must not be encouraged and instead the cash available with these enterprises should be used for expansion to push the investment cycle which has declined over the period.
(The writer is a Chartered Accountant and Anti Money-Laundering Specialist)
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