Disinvestment – For What?

Dipankar Mukherjee

“Therefore, if the objective of the government were to bridge the resource gap by disposing of the capital assets, in order to meet the consumption expenditure, it would simply not be permissible by any amount of fiscal prudence. If you have Rs 2 lakh crore of fiscal deficit; in two years you can dispose of all the assets which you have; then, what are you going to do from the third year? Therefore, we would like to know the basic objectives. You shall have to decide on that. We would like to have a categorical answer from the government. It is not merely a question of disinvestment.……In the last ten years, no consensus has developed on these particular aspects. Disinvestment for what objective? What are you going to do with the proceeds of the disinvestment? Is it only to bridge the Budgetary gap? Is it prudent to dispose of the capital assets and use it for meeting the normal consumption expenditure? Should you not explore the possibility of reducing your fiscal deficit through other appropriate ways? All these questions would surely come.”

The above questions were raised by none other than the present union finance minister Pranab Mukherjee in Rajya Sabha eight years back when he was in opposition, just before the budget on February 27, 2001 while moving a Calling Attention Motion on the disinvestment of BALCO. The questions still remain unanswered. No consensus has developed as can be seen from the stand of different political parties during the debate on the motion of thanks on the president’s address on June 4, 2009.

Why then this urgent call for disinvestment in select PSUs? Is it only because the “Left road block” has been removed after five years? But then the above words of wisdom were uttered eight years back when Congress did not need the support of Left to remain in opposition! The clue is there in the above mentioned speech of Mukherjee when he said:

“…I read from the newspapers saying, “Stick to the deal: FICCI advices the government.” They would like to have total private sector and total market economy everywhere. It is not today: from day one, they are demanding that.”

That is the crux of the issue. Who wants disinvestment? FICCI and other industrial bodies like CII, ASSOCHAM etc who were goading the then disinvestment minister Arun Shourie in 2001, and who are now fixing the agenda for the new government. It is they and not the people of this country who are yearning for ownership in PSUs.

PEOPLE’S OWNERSHIP
THROUGH SHAREMARKET?

People of the country elect their representatives in parliament and through parliament elect their government. Public Sector Enterprises are owned by the government and not by the government of the day. People’s ownership in PSU is ensured through parliament, elected by the people. The ownership of the people through Parliament can not be diluted by ownership of a few people through share market. The fallacy of this newly coined word of “people’s ownership” to conceal the process of “creeping privatisation” i.e. privatisation in phases, becomes clear if one looks the disinvestment of shares of BHEL, a navaratna PSU carried out by the Congress government during 1991-1996 when Dr Manmohan Singh, as the finance minister initiated the process of selling shares of PSUs. The Left parties, when they opposed and stalled the selling of 10 per cent shares of BHEL during the last UPA regime, threw at the government’s face the following share holding pattern of BHEL to expose the fallacy and real intent of such disinvestment in the name of “people’s ownership”.

BHEL’s Share Holding Pattern

Category of Share holder % of Shares

Government of India 67.72
Foreign Institutional Investors 17.03
Mutual Funds 05.14
Insurance companies 03.83
Bodies Corporate 03.86
Individuals holding nominal share 01.92
capital up to Rs 1 lakh and others

The above clearly shows that in the name of people’s/ workers’ ownership of shares, about 21 per cent shares were handed over to FIIs and private corporates during Dr Manmohan Singh’s tenure as finance minister and the so-called people’s share was only 1.92 per cent. Similar was the case of NTPC and other blue chip PSUs, where FIIs and private corporate grabbed most of shares, disinvested through this process.

CONGRESS Vs
CONGRESS

The presidential speech on disinvestment more or loss reiterates Congress manifesto for the 15th Lok Sabha election which states:

“The Indian National Congress rejects the policy of blind privatisation followed by the BJP-led NDA government, but believes that the Indian people have every right to own part of the shares of public sector companies while government retains majority share holding.”

The “blind privatisation” led to the defeat of NDA in 2004 election. Congress is now trying “enlightened privatisation” through back door in the name of the people! If Congressmen of post 1991 vintage were really interested in forms of public participation in public sector, they could have looked into the report of a sub-committee of the Congress Party appointed by the then prime minister Jawaharlal Nehru on April 10, 1958 to consider the problems relating to State-owned corporations and companies and to suggest better parliamentary supervision. The 10-member sub-committee, headed by V K Krishna Menon included Feroze Gandhi, Dr P Subbarayan, Mahavi Tyagi among others. The sub-committee had recommended the following on the question of public or employee’s participation.

“As it must be the aim to enable workers to participate not only in management but also as functionaries and owners in a direct way these shares may be either confined or made preferentially available to those engaged in the industry and a Director can then be drawn from the ranks of the investing employees. ......Such shares shall not be available for purchase by private corporations or business concerns.”

Is it acceptable (especially the portion emphasised)? Or is it regressive for the present Congressmen inspired by “Reform” mantras? After all, they are now so taken in by the repeated query of the corporate and the elite circles “where from the resources will come for social sector expenditure”? As though social sector expenditure in education, health and social security is a one time expenditure which can be dispensed of by selling the PSU shares in one or few tranches? But is resource really the issue?

UPA GOVT’S RECORD
WITH PSU RESOURCES

The reserves and surplus of Central Public Sector Enterprises was Rs 2.59 lakh crore in 2003-2004 when the UPA government came to power. The same has gone up by another Rs 2.26 lakh crore and stood at Rs 4.85 lakh crore in 2007-2008. Who stopped them to use this amount of Rs 2.26 lakh crore for any productive purposes, including social sector expenditure? As a matter of fact, out of this huge reserve and surplus, an amount of Rs 1.42 lakh crore is being utilised in non-productive financial investments. For example, NTPC, a navaratna PSU, was having as on March 31, 2008 cash and bank balance of Rs 14,933 crore, out of total reserves and surplus of Rs 44,393 crore? Do you have to sell shares worth Rs 10,000 crore to Rs 15,000 crore while similar amount of huge money is locked in non-productive reserves? The pet answer is — these reserves are for the company’s expansion and future projects. But is that true? No. Nobody invests all his money, whether capital or reserves, to run a business or start a project. The investor puts a part of it as equity from his/her pocket and borrows the rest from banks as debt. For all big private sector players, the government is now permitting 4:1 debt equity structures i.e. for every one rupee investment the private sector can borrow 4 rupees from the banks and financial institutions (FIs). They are therefore low equity (i.e. their own investment) and high debt companies, with debts borrowed mainly from public sector banks and FIs. On the contrary the Public Sector Enterprises have high equity and low debt. At a time, when banks are having huge funds at their disposal, the government-owned CPSEs can borrow from banks based on present debt equity position. As on date CPSEs together have roughly a debt equity ratio of 1:2 i.e. the equity is double the amount of debt. To be more precise, as per latest Public Enterprise Survey 2007-2008, CPSEs have an equity of more than Rs 6 lakh crore against a long term loan of Rs 3.2 lakh crore.

CREEPING PRIVATISATION
INSTEAD OF ‘BLIND PRIVATISATION’

The CPSEs, therefore, in the line of private sector can borrow safely an amount of Rs 15-20 lakh crore from the banks and FIs without shedding any equity shares i.e. without any disinvestment. Who stops them? Why then should they go for selling shares of a petty amount of Rs 20-30 thousand crores? Is there any economic logic?

No. The objective is neither people’s ownership nor overcoming resource crunch. It is located much deeper in the ideological concept of free market economy where public sector has no place. The objective is only privatisation i.e. change of ownership of CPSEs. The routes are different – “Shouriean” way of what the Congress calls “blind privatisation” or the “Manmohanimcs” route of “creeping privatisation” under different nomenclatures viz retail investor, workers’ participation or now the people’s ownership.

“For God’s sake do not try to befool every body that only disposal of capital assets is the core of economic reforms”, bemoaned Pranab Mukherjee on December 04, 2002 while initiating a short duration discussion on disinvestment in Rajya Sabha. We can only tell the Congressmen of pre-91 vintage –– for the sake of Congress leaders like Nehru, Krishna Menon and Feroze Gandhi, do not befool the people that “creeping privatisation” is people’s ownership.