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Distorting divestment

Jan 31 2014, 02:54 IST
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SummaryThe government is subverting the goals and the ethos of divestment by forcing PSUs to shell out special dividends and use up their surplus cash by acquiring stakes in other PSUs, simply to meet its fiscal deficit target

Hats off to all the great men who have thought of the ingenious ways of meeting the disinvestment target (read, meeting the fiscal deficit).

Disinvestment has, for long, meant diluting a small part of the government-holding in PSUs by way of a capital market offering. The stated objective, on one hand, has been to broaden and deepen the capital market and, on the other, bring about more transparency and better corporate governance in PSUs. Over the last few years, this indeed has been the case. During its entire history, some of the highest sums mobilised through divestment have been in the recent years—R23,857 crore last fiscal, followed by R22,763 crore in FY11 and R21,305 crore in FY10. The intervening year 2011-12 had witnessed a mobilisation of R14,036 crore.

The ambitious target for the current fiscal is R40,000 crore through disinvestments and R14,000 crore through the sale of residual stakes.

With 10 months already gone by in the current fiscal year, only R968 crore has been raised through offers for sale of shares of MMTC, Hindustan Copper, National Fertilisers, ITDC and STC, and another R1,638 crore through the FPO of PowerGrid. The real disinvestment works out to only R2,606 crore or just 6% of the target.

Opponents of disinvestment include the relevant ministries who just do not want more transparency and who hate intrusion into their fiefdoms. Recently, the ministry of petroleum and the ministry of heavy industries intervened in the capital market process for divestment of IOC and BHEL, respectively. In the first case, disinvestment has now been substituted by getting related PSUs to effect cross-holdings using the latter’s surplus cash and, in the second, by a crass usurping of cash from cash-surplus PSUs and PSU banks.

Earlier this fiscal year, trade unions successfully prevented Neyveli Lignite Corporation Ltd’s divestment. Subsequently, a novel way was adopted—the central government sold Neyveli shares worth R358 crore to the Tamil Nadu government. Recently, trade union protests led to the government jettisoning its 5% divestment (down from the originally envisioned 10%) plans for Coal India.

Then, there have been unknown opponents who long prevented the sale of shares held by Specified Undertaking of Unit Trust of India (SUUTI). Plans for selling SUUTI’s stake in three companies—Axis Bank, ITC and L&T—touted to rake in R50,000 crore, made the headlines recently. It may be recalled that SUUTI was being wound up, and this decision has now been reversed to facilitate this sale.

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