PSUs: white elephant or golden goose

There are indications that disinvestment of government equity in select public sector units is set to enter a bull phase in fiscal ‘05-06. As early as April-May ‘05, the government may bring out public issues to dilute its holding in Maruti Udyog and Bharat Heavy Electricals.

There is already a consensus within the government that shares in these companies should be offloaded via the public offering route, though the Left continues to wave the red flag.

Several candidates are being lined up. These could include a bouquet of energy sector companies like PowerGrid, Power Finance Corporation, National Hydro Electric Corporation, Shipping Corporation, National Thermal Power Corporation and the Oil and Natural Gas Corporation, which has already had a successful dilution last fiscal.

Other profitable PSUs that were once on the disinvestment list of the NDA government, such as Shipping Corporation, National Aluminium, Bharat Petroleum Corporation, National Fertiliser and Engineers India, could also make it to the list.

Among unlisted companies, the minister for civil aviation, Praful Patel recently indicated that PSUs like Indian Airlines and Air-India may be floated. A paper prepared by the department of disinvestment last year, suggested that the government could bring shares of some 35 profitable PSUs, including nearly 20 unlisted ones, to the market.

The paper said that equity shares up to 49% could be offered in all these companies to raise resources for the government’s expenditure plans, as well as to ensure that shares of these PSUs are widely held.

The report, which was prepared in the middle of ‘04, as well as the disinvestment plans, later went into cold storage and the NTPC public offering was the only transaction completed during the financial year.

One major reason was the differences expressed by the ministry of heavy industries over the mandate for the board for restructuring of public sector enterprises. The other was, of course, opposition from the Left parties. Of the modest target of Rs 4,000 crore set for the year, the government managed to achieve just about Rs 2,684 crore.

The general feeling is that the government cannot afford to repeat its lacklustre performance in ‘05-06, particularly after the huge commitments made by the National Common Minimum Programme. The Planning Commission has already suggested that close to Rs 40,000 crore would have to be provided for programmes of the NCMP.

Congress chief and National Advisory Committee chairperson Sonia Gandhi has written to the Prime Minister stating that additional funding should be provided for eight identified programmes of the NCMP.

This would mean about Rs 15,000 crore of the Rs 40,000 crore sought by the Planning Commission would have to be channelled to the programmes. The big question is: Where will the finance minister find the resources for these programmes if disinvestment is given a go-by in ‘05-06.

It is hoped that the Left will eventually relent, because their vote bank would be among the beneficiaries of the development programmes. The Centre, has already tried to buy peace with the Left on this issue by committing to the creation of a National Investment Fund, to which all disinvestment proceeds would be transferred to fund development work.