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SPECIAL FEATURE - Disinvestment: The fourth stimulus package for Indian economy |
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The return of Congress-led coalition at the centre, sans the Left wings, has put the disinvestment agenda back in the forefront of India’s domestic policy making. The relevance and repercussion of disinvestment is wide-open for all to see and it is not only Congress’s pronounced inclination towards selling off minority stakes of Public Sector Undertakings (PSUs) which may set the ball rolling—this time there is a never-been-so-strong economics behind the whole agenda. At a time when successive stimulus packages, announced by the Indian Government to stem the impact of worldwide economic crisis, has put tremendous pressure on the state exchequer and shrinking revenue receipt doing little to beef up Government’s coffers, disinvestment in PSUs is being seen as a viable option to bolster Government finances.
Rationale behind disinvestment in PSUs: To put in place three booster doses for the Indian economy, Government has incurred a fiscal deficit of Rs 3,30,000 crore, amounting to 6.2 per cent of Gross Domestic Product (GDP)of the country in 2008-09. Hence it is only natural that, after spending such a staggering amount, in its second term the UPA Government will look to solidify its accounts and would raise resources via available means, most prominent of them being the disinvestment option. Prime Minister of India, Manmohan Singh has himself indicated that the full Budget for 2009-10 may announce a disinvestment of Government stake in PSUs. "Fiscal prudence and disinvestment of public sector units -- all these issues will be tackled by the Finance Minister in the Budget", he recently announced.
According to estimates of various investment bankers and brokerage Houses, inflow to Government exchequer could be massive over the next few years, even if it plans to dilute its stake in so-far listed PSUs to 51 per cent. Government’s holding in listed state-owned enterprises are estimated to be over Rs 8.8 lakh crore, and if stakes are diluted to 51 per cent in these PSUs at current market prices, it would yield an inflow of around Rs 3 lakh crore. A conservative dilution of 10 per cent in top 10 PSUs can fetch a staggering Rs 85,000 crore in terms of market valuation itself. At this hour of crisis management, the Government would obviously look to explore disinvestment options, if not in profit-making PSUs, then in loss-making ones at least to tighten its fiscal belt.
In addition, initial public offering (IPOs) from so-far unlisted Government PSUs can help reenergise the IPO market and strengthen the stock market as there is enough appetite for Government stocks from retail and institutional investors. Unlike the previous term, where revenue kitty was robust and the economy head-strong, the Government is under pressure this time to finance its own plans. As the UPA Government has prioritised its commitment for social sector schemes and infrastructural development, it wishes to pursue these objectives without any further compromise on fiscal health. To finance the massive public expenditure on several highly ambitious schemes, it is possible to ensure adequate fund by selling off shares of Government undertakings.
For those advocating the necessity of initiating PSU reform, the disinvestment can provide a much-needed boost—as it is likely to act as an effective instrument to enforce market discipline in mighty PSUs. Once listed, public enterprises will be open to public glare and will have to abide by the compliance norms of market regulator, SEBI as well as the stock exchanges, including quarterly release of their income statements and on-time dissemination of market-sensitive information.
As the Congress manifesto points to the fact that, common man will also benefit from the process of disinvestment-there seems to be some truth in the conviction. As IPOs of PSUs are made available in the public domain, individuals get an opportunity to create wealth for themselves. In addition, it offers them to be part of the decision-making process in nation’s coveted PSU sector.
Government at work: With disinvestment poised to make a strong come back after five years, officials in the Finance Ministry and Administrative Ministries for different public sector enterprises have focused to prepare a definitive roadmap for the process. In a major sign of breaking free through the terms and conditions, imposed by its former Left allies, the new Government is also mulling winding up of the National Investment Fund (NIF), into which disinvestment proceeds have been flowing in the last five years. The NIF has been kept outside the consolidated fund of India and according to the constitution of NIF, 75 per cent of its annual income has to be used to finance selected social sector schemes. Analysts hope by channeling disinvestment proceeds away from NIF the Government will be able to use the disinvestment money to bridge the widening fiscal deficit.
The Government is said to have prepared a list of nearly 40 PSUs in which it is looking to divest part of its shareholding through the stock market. The block includes 15 listed companies, in which the government’s stake is over 90 per cent. Experts believe that since divestment will not involve a strategic sale of shares or a change of management, it is unlikely to face steep resistance from any quarters. "In many of these cases, the divestment will take place through secondary market operations, so the government will not need even board approvals," said a Government official.
The Government has also drafted a list of around 25 unlisted enterprises for selective disinvestment. These companies are estimated to have a net worth of Rs 200 crore with each of the enterprises earning a net profit in each of the past three years. Some of these include, Rashtriya Ispat Nigam, Bharat Sanchar Nigam Ltd, Coal India, Hudco, Export Credit Guarantee Corporation, North East Electric Power Corporation Ltd and Indian Railway Finance Corporation. In the interim-budget itself, the Government sought to raise Rs 1,120 crore by selling part of its stakes in six public sector entities, including Rail India Technical and Economic Services (RITES), Telecommunications Consultants India, Cochin Ship Yard, Manganese Ore India (MOIL), Satluj Jal Vidyut Nigam (SJVN) and Rashtriya Ispat Nigam (RINL).
In addition, the Government is also charting out a plan to stabilise and nurse sick PSUs back to health before disinvestment initiatives can takes place, according to Chairman of Board for Reconstruction of Public Sector Enterprises (BRPSE), Nitish Sengupta. He said that "Yes, we want to bring the loss-making companies to record operating profits before they can be disinvested".
The board is also taking keen interest in case of Air India, which is going through the process of integration with Indian under the entity— National Aviation Company of India Ltd (NACIL). Among others who are looking to accumulate capital through stock exchange route is oil exploration major, Oil India Ltd (OIL) which is likely to launch an IPO in September, said Petroleum Secretary R.S. Pandey.
Union Steel Ministry is also reported to be ready for any possible disinvestment in steel PSUs when the Government comes out with a formal policy on the issue. As per the Steel Minister Virbhadra Singh, “If the policy of disinvestment is approved, we have some companies on our mind”.
Walking the balanced rope: While going all out on the agenda of disinvestment, Government must ensure that listing of PSUs are really meaningful by offering adequate free-float to stem any sharp movement in stock prices. Earlier, it was evident that in a large number of cases, less than 5 per cent of the PSU stocks are actually listed, thus generating possibility of exorbitant stock prices and manipulation in the wake of poor liquidity and intense demand.
Political obstacles also have to be given due consideration. There are already some opposition emanating from the chief ally, Trinamool Congress and southern alley DMK. TMC has said it will oppose any move to disinvest PSUs or strategic sales of profitable PSUs. DMK too has a track record for opposing sale of shares of PSUs, such as Neyveli Lignite Corporation.
Hence, the Finance Ministry, which is now in-charge of disinvestment, must create a consensus on the issue of disinvestment by engaging key administrative ministries, coalition partners in Government, including Congress as well as stakeholders of the PSUs, including employees. As the receipts from the disinvestment activities are crucial for financing Government spending on key projects, the consensus around the sources of receipts will only streamline the whole process, unlike some earlier instances when the decision of disinvestment was coupled with vehement opposition as all concerned parties were not taken into confidence.
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