Niti Aayog Big Bang Reform Pitch: Strategic Sale Of 16 PSUs, Closure Of 26

Free of his information and broadcasting portfolio, will finance minister Arun Jaitley now turn to implementing Niti Aayog’s recommendations on disinvestment of public sector undertakings (PSUs)? This could mean putting as many as 16 PSUs up for strategic sale and closing down 26 others.

In March, Niti Aayog had been given a role similar to the disinvestment commissions set up during the United Front and first National Democratic Alliance governments – identify PSUs for disinvestment or privatisation as well as the extent and mode of disinvestment. The Aayog was given two tasks. One, to make recommendations on a list of 74 loss-making and sick PSUs and, two, to recommend strategic sales of PSUs.

After the first lot of 16 PSUs, the Aayog will be studying another 46 for likely strategic sales, sources in the government told Swarajya. No, Air India is not among these.

Air India, however, does figure among 22 PSUs that the Aayog has recommended should be first revived and then go through strategic disinvestment. The others are the National Film Development Corporation (NFDC) and the fertiliser PSUs like Fertiliser Corporation of India, Madras Fertilizers. These are part of the 74 loss-making/sick PSUs that the Aayog studied.

Of the remaining 52 loss-making PSUs, the Aayog has recommended that 26 units should be closed and wound up. These include HMT Watches, Hindustan Photofilms, Bharat Wagons and Engineering and Hindustan Antibiotics. Five hotels, it said, should be given on long-term management leases. In addition, it recommended merging three PSUs with other central PSUs, strategic disinvestment in ten (including Cement Corporation, Hindustan Steel Works and Rajasthan Drugs and Pharmaceuticals; these are not part of the 16 recommended for strategic sales) and six should either be sold or transferred to state governments. In the case of two – National Textile Mills and Bharat Petro Resources - the Aayog recommended no action at all since it wanted to do a more detailed study.

The government certainly needs to act fast on these recommendations, especially those relating to closure and winding up. Look at the money stuck in these PSUs - Rs 760 crore in HMT Watches, Rs 444 crore in Hindustan Photofilms, Rs 352 crore in Hindustan Antibiotics and Rs 22 crore in Bharat Wagon & Engineering. And look at their losses in 2014-15: Rs 259 crore in HMT Watches, Rs 2164 crore in Hindustan Photofilms, Rs 89 crore in Hindustan Antibiotics and Rs 156 crore in Bharat Wagon & Engineering.

Well, these losses are small change compared to Air India’s losses of Rs 5859 crore in 2014-15. Air India’s losses have been above Rs 5000 crore consistently since 2012-13, though that is an improvement over the Rs 7559 crore loss in 2011-12. This makes it a ripe case for either closure or immediate sale.

But the idea perhaps is to dress up the bride before the wedding. Restructuring these PSUs and improving their finances could help get better valuations at the time of strategic sales. In February, Jayant Sinha (then the minister of state for finance) had said in an interview with Swarajya:

The government has brought in Ashwini Lohani, who has the turnaround of ITDC to his credit, to restore Air India back to health. But it is difficult to fathom how this will not be a case of throwing good money after bad. There are far too many entrenched interests in Air India and the task of revival will be not just rocky, but filled with immense boulders. Could this be a reason why Sinha has been shifted to the civil aviation ministry? If so – and if he is allowed to work without interference - there is hope that the continued waste of taxpayers’ money will soon be a thing of the past.

Of the fertiliser companies, three are loss-making, posting a combined loss of Rs 915 crore. The same question arises here – is there any point in trying to revive these, if the eventual aim is strategic disinvestment?

The Niti Aayog has been quite quick with its report and recommendations. The government now must not tarry on implementing them.