Privatisation: Shift From A Revenue-Based Rationale To An Ideology-Based One

Disinvestment to raise revenues to plug the fiscal deficit has to give way to privatisation in keeping with a minimum government agenda.

Could we actually see a shift from a revenue-raising rationale for disinvestment to an ideology-based rationale for privatisation? Going by this Hindustan Times story, it could be a real possibility.

The article says that a committee of secretaries has recommended that the government should start planning to get out of airlines, hotels and travel agencies and that this approach will be in line with the ‘minimum government, maximum governance’ mantra. This is an extremely sensible line to take and the government should consider this seriously.

The 14th Finance Commission had also suggested a disinvestment strategy where public sector undertakings would be categorised as high priority, priority, low priority and non-priority and decide the level of government holdings in these. The government, it recommended, should get out of the last two categories.

It is not a good augury, however, that Prime Minister Narendra Modi reportedly did not react to this proposal when the committee made its presentation on transformative changes for good governance. He is perhaps caught between two conflicting positions he himself has taken. On the one hand, he has said at some business forums that government should not be in business. On the other hand, he has also spoken about strengthening the public sector and about how, during his tenure as Gujarat chief minister, he turned around several state public sector enterprises (PSUs).

This government’s policy on disinvestment has been extremely disappointing. In its early days, a committee was set up to look into whether the surpluses of cash-rich PSUs could be used to put ailing PSUs back on their feet. And heavy industries minister Anant Geete said the government had identified five PSUs for revival – two of them were consistently making losses for several years. In some of his statements early in his tenure, the finance minister, Arun Jaitley had indicated that the government would follow the United Progressive Alliance government’s approach.

Much is made of a mention of strategic sales in Jaitley’s budget speech last year, but there has been little action on the ground, barring IDBI Bank where a qualified institutional placement (QIP) has been initiated. That, minister of state for finance Jayant Sinha said in this interview to Swarajya could open the door to a strategic investor. But this is not just enough.

Sinha said in the interview (the full text of which will be available in the February issue of the magazine) that the government was moving in a measured manner as some of these PSUs, which were in a financial mess, needed to be strengthened first in order to get good valuations in a strategic sale. That’s a fair point, considering the opposition is just waiting for any opportunity to throw the suit-boot sarkar epithet and crony capitalism charge against this government. Hopefully, that is the reason why Ashwani Lohani was brought in to restructure Air India and make it profitable – to dress it up for an eventual sale.

But turning an Air India or a Bharat Sachar Nigam Ltd (BSNL, which made an operating profit after eight straight years of losses) around will take several years unless drastic measures are taken. This may not be politically acceptable, but the government needs to bite several bullets on this. Since distress sales and drastic measures are both going to be politically difficult, the government needs to take a call on either one of them. Why not start with other less high-profile PSUs among the top ten loss-making ones? How long will taxpayers have to continue to see their good money being poured after bad?

There had been some news reports about the government setting up a disinvestment commission to identify PSUs that could be sold outright, partially or revived, but there has been no public announcement of that. The United Front government had set up one under G. V. Ramakrishna, which made recommendations on 58 PSUs; the first National Democratic Alliance government set up another under R. H. Patil, which made recommendations on 41 PSUs (including four from Ramakrishna’s list).

A new commission is needed (circumstances change, so it is necessary to set up a new one each time) and the government must not delay setting it up. However, the brief given to it should be to use the tests the committee of secretaries or the 14th Finance Commission suggested. The government needs to stop pussyfooting around the issue. Disinvestment to raise revenues to plug the fiscal deficit has to give way to privatisation in keeping with a minimum government agenda. There are better uses for government’s financial and managerial resources than running businesses.