22 July 2019 OUTLOOK 27
Govt goes for Rs 1.05 lakh crore disinvestment target. Will it really help ailing PSUs like Air India?
D Company A nd India Inc.
to unlock the sizeable reserves of com-
panies like Coal India and ONGC. It is
another matter that while the govern-
ment coffers have improved, companies
like ONGC are now having to borrow
funds to monetise oil and gas they are
expected to explore and produce to
red uce import dependency.
Data from the department of invest-
ment and public asset mana gement
reveals that in the last five years, the
Modi government managed to garner
Rs 2.8 lakh crore through disinvestment,
substantially more than the amount
collected in the previous decade. In the
last fiscal, ONGC’s forced acqu isition of
the unprofitable GSPC and oil marketingmajor HPCL contributed sizably to the
government kitty.
Mahesh Vyas, managing director and
CEO of Centre for Monitoring Indian
Economy, points out that in the case of
Coal India or ONGC, acquisition of a
sister PSU was not “in the spirit” of
disinvestment. “It was just the arm of
the control shifting from the govern-
ment treasury to another PSU. Though
called disinvestment, it is essentially
preferential dividend allotment or giv-
ing government preferential access to
the profits of the PSU.”T
HE finance minister’s budget
speech has boosted Vyas’s hopes
of the “Modi government taking a
few more steps in the direction of
real disinvestment” compared to what
it has done so far. He, however notes
that the government is still shying from
committing to selling off loss-making
Air India altogether. “It looks like the
government is willing to walk a little
more in the direction of disinvestment
but it is still not committing that ‘we will
have only strategic places where we will
be involved and hive off the rest’. There
is still talk about retaining 51 per cent,”
points out Vyas.
Deven R. Choksey, CEO and managing
director at KR Choksey, feels there are
better ways to divest PSUs. “Probably
they need to invite strategic investors
into these companies. In turn, the gov-
ernment should be a minority stake-
holder in the divested companies and in
a leisurely manner they should gradually
reduce their holdings. This will help the
strategic investor to bring in capital and
expertise and also bring out the best in
the government companies, which
though good are suffering due to lack of
consistency in the management.”
Citing Hindustan Zinc, VSNL and
Maruti as some of the examples of suc-
cessful disinvestment, Choksey empha-
sises that while the government’s
purpose of bringing down fiscal deficit
through divestment is being carried out,
whether the enterprise’s value is inc-
reased is open to question. This speaks of
the failure of the disinvestment pro-
gramme. The case is worse when the
government strips a profitable company
of its financial resources, required to
carry out its core duty, and then talks tall
about protecting national resources and
reducing import dependency. OPFC purchases 52.63% govt
stake in REC
Acquisition cost:
Rs 14,500 cr
Reason: Future merger to enable
synergies
Reality: Deal helps govt to exceed
disinvestment target in 2018-19ONGC buys GSPC
Acquisition cost:
Rs 7,700 cr
Reason: Strategic and
immense value proposition
Reality: GSPC found no gas;
its huge debt remainsIndian Oil’s share
buyback/Coal India’s
share buyback
Cost: Rs 4,435 cr/
Rs 1,050 cr
Reason: Shore up share
prices
Reality: Windfall for govtsale from 26 per cent to 75 per cent
through strategic sale or public offering.
With some outright sales and majority
stake sales having come in for audit and
public questioning, an element of cau-
tion had become necessary. But that no
longer seems a handicap. Each disin-
vestment is now being handled differ-
ently as the government goes about
reducing its share in public sector
enterprises. In the banking sector,
there has been dilution of government
stake of up to 51 per cent. Lately, cross
holding by making a profit-making
enterprise buy out stakes in another
PSU or from the government has
proven an easy way for the government