Govt open to divesting up to 49% in profit-making PSUs

MUMBAI / NEW DELHI: Even though the common minimum programme announced on Thursday apparently puts a firm lid on privatisation of profit-making public sector units, the Congress-led government, it seems, is open to disinvestment of upto 49% in PSUs, even in the profitable ones, provided majority stake and management control remains with the government.
Prime Minister Manmohan Singh is learnt to have told a delegation from the Confederation of Indian Industry (CII) on Thursday that the government “has no mental block in divesting upto 49% even in profit making PSUs provided it remains a majority stakeholder with management control.� Industry observers say the fact that the Congress-led government is seemingly open to bringing down its shareholding to 51% even in profitable
PSUs through the capital market route, provided it continues to remain in the drivers’ seat, would be a positive step in carrying the reforms programme forward.
“I understand that the Congress-led government will on a case-by-case basis continue disinvestment of even profitable public sector units as far as they continue to keep 51% ownership and management control,� Rahul Bajaj, Bajaj Auto CMD, told ET. u Related report If the Union government can actually go ahead with stake sales in profitable PSUs, even while keeping control, this will definitely bring cheer to the stock markets, given the big ticket disinvestment opportunities, although of minority stakes, in the blue-chip navaratnas, especially the oil majors (ONGC, IOC, HPCL, BPCL) and aluminium maker Nalco.
More importantly, if the government decides to sell small part of its shareholding, instead of going for sale of new shares, this will give the government the much-needed flexibility to raise funds, putting to rest fears of a rise in fiscal deficit.
The CMP says that the government will not “privatise� its profit making PSUs. However, it is not clear whether this means that the government’s current equity stake in various profit-making PSUs will be frozen at the current level. In the case of ONGC, for instance, the government holds 86% after the NDA government sold a 10% stake in March ’04. That is the interpretation that the left, particularly the trade unions, might like to put on the CMP.
On the other hand, Prime Minister Manmohan Singh has gone on record saying that PSUs can go to the capital markets to raise funds through the equity route to finance expansion plans. That would obviously result in a dilution of the government’s stake. Mr Singh and other senior functionaries of the UPA government have not also explicitly ruled out selling stakes of PSUs like GAIL and ONGC in small tranches of 5% to 10% to reduce the fiscal deficit.
“While on one hand, this will enable the government to generate funds for spending on social welfare, infrastructure development and debt reduction, it will make PSUs more accountable which will be able to improve efficiency through greater autonomy,� Mr Bajaj said.
While the CMP promises to approach privatisation of loss-making undertakings on a case-by-case basis, the industry believes that sale of loss-making undertakings will be difficult given the mechanism that has been laid out, especially since it will require approval of the unions. “Privatisation now appears no longer possible in practice even for loss-making public sector units,� says Mr Bajaj.
Industry officials say that the disinvestment through the capital market route, sans majority stake and management control, would not be much different from what the NDA government’s disinvestment in frontline oil majors such as ONGC and GAIL.
More importantly, this opens a host of options for the new government for raising cash as well as sending the positive signals with respect to reforms. This would also help the government in tiding over the fiscal pressure of oil and gas subsidies for which it is already under immense pressure to put a lid on any price hike to consumers, industry sources say.