Disinvestment - Can Jaitley Do A Shourie ?

Is finance minister Arun Jaitley’s statement at the India Economic Summit on November 5 that he wants to privatise loss-making public sector units the great reformist signal that it is being made out to be?

It would, if he followed up his words with action in the form of selling off Bharat Sanchar Nigam Ltd, Mahanagar Telephone Nigam Ltd and Air India, the three top loss-making companies (in that order), as many economic commentators have pointed out since then.

But if Jaitley believes that loss-making public sector undertakings (PSUs) should be privatised, why did he not oppose the setting up of a committee to look into whether the surpluses of cash-rich PSUs could be used to put these bedridden corporations back on their feet? The committee was headed by a serving PSU head honcho – NTPC’s Arup Roy Choudhury – and it quite naturally said, yes, of course that is possible.

Heavy industries minister Anant Geete said in a press conference in end-September that the government has identified five PSUs for revival – HMT Machine Tools, Heavy Engineering Corporation (HEC), NEPA Ltd, Nagaland Paper and Pulp Company and Triveni Structurals. But HMT Machine Tools and NEPA have been making losses consistently from 2007, in spite of having been taken up revival in 2007 and 2012 respectively.

Perhaps it is time to remind Jaitley of something he did as India’s first disinvestment minister (a department of disinvestment was set up in 1999 with Jaitley as minister; it became a full-fledged ministry later and then reverted to a department in the finance ministry). He got the website of the department to carry a set of five points as the rationale for disinvestment:

Disinvestment would, the list said, do the following:

1. Release huge amounts of scarce public resources locked up in non-strategic PSUs, for deployment in areas much higher on social priority

2. Stem further outflow of these scarce public resources for sustaining unviable non-strategic PSEs

3. Reduce public debt

4. Transfer the commercial risk, to which the tax payers’ money locked up in the public sector is exposed, to the private sector wherever the private sector is willing and able to step in. The money that is deployed in the PSEs is really the public money; and is exposed to an entirely avoidable and needless risk, in most cases (emphasis added)

5. Release other tangible and intangible resources…for redeployment in areas that are much higher on the social priority but are short of such resources.

In addition, there were five other expected benefits that were listed :

1. Exposing privatised companies to market discipline

2. Wider distribution of wealth through offering of shares of privatised companies to small investors and employees,

3. Giving the capital market more depth and liquidity,

4. Increasing economic activity and providing more choice

5. Better services in many areas that were marked by public sector monopoly (the example of telecom was specifically mentioned).

Jaitley would talk about these in almost every interview he gave. One of the first things the UPA government did was to take down this list from the website. The list has not made a comeback under Jaitley. Does he no longer believe in these points?

If he does, he needs to explain how what his government is doing – trying to pour in more taxpayers’ money into PSUs that should be put to sleep – squares with those points. How are any of those purposes being served by this government following the UPA policy on disinvestment (something Jaitley acknowledges)?

Why should the surplus cash with profit-making PSUs be used to bail out loss-making ones? One can argue that the surplus cash is not tax payers’ money but the result of the commercial operations of the companies concerned. True, but tax-payers are the ultimate shareholders in all PSUs where the government holds at least 51 per cent stake. Just because they don’t have a voice to the extent that shareholders in private companies do, are their interests to be ignored completely?

Can the cash surplus of these companies not be put to better use in a way that will give a fillip to economic activity and job generation? And will these PSUs have the freedom to refuse to get into joint ventures with ailing companies?

Jaitley’s successor as disinvestment minister, Arun Shourie, who has not been given his due by this government, had a very dim view of revival packages of PSUs. In an interview to this author in November 2000, he had said that using privatisation proceeds for rehabilitating PSUs (a proposal that had been made then) was like pouring a bucket of water into the Brahmaputra.

He had pointed out that there had been 23 revival packages costing Rs 34,000 crore in the previous nine years but they had not made an iota of a difference to the public sector units. “Is it that everybody who implemented those packages were scoundrels? It cannot be. The reason must be that governmental structures have become such, labour practices are such, that we are not able to revive these PSUs.”

Fourteen years after that interview, the words remain relevant. According to the Public Enterprises Survey 2012-13 (the latest that is available), Rs 28,354 crore of cash and non-cash assistance has been pumped into 47 PSUs up to October 2013. Twenty of them, into which over Rs 15,630 crore was funnelled, continued to bleed. Isn’t this as much of an abomination as NREGA?

Perhaps Jaitley does intend to privatise these perpetually loss making ones, but there is another issue here. The National Textile Corporation (NTC), which was approved for revival in 2005, has been making profits (though the profits include extraordinary income, withdrawal of provisions etc), Hindustan Insecticides has been turned around. PSUs in the tourist services sector are generating profits. Should the government continue to manufacture textiles, insecticides, industrial lubricants and greases. and run hotels?

Let’s again go back 14 years. This is what Jaitley said in Parliament, while intervening in a Lok Sabha debate on privatisation in August 2000 (by then he was in charge of law and company affairs as well as information and broadcasting):

“There was a time when . . . there was very little of the private sector and very little of it prepared to make an investment in certain areas. At that time, the public sector did have a role but today, except in certain cases, it is functioning in all those areas where the private sector has come in a big way and has come in as a competitor.” (emphasis added) At another point in his address, he said: “Are we going to invest the tax payers’ money in businesses where private sector investment is available or are we going to use it in the social sector, which is the declared policy of this Government?”

Good point. So why is the government not getting out of sectors like hotels, textiles, lubricants, telecom and civil aviation in all of which there is a robust private sector presence? Whatever security and public purpose concerns there may be in the case of the last two sectors can be addressed through other means. The danger of monopoly can be averted by ensuring that government policies actively foster competition.

If Jaitley really meant all that he did as disinvestment minister and said later in the Lok Sabha debate, and if he is Narendra Modi’s go-to man, as we are constantly told he is, he needs to bring about a complete change in the government’s policy towards the public sector and towards privatisation.