The full circle

Sound move to link PSU restructuring with selloff

The disinvestment ministry’s proposal to link restructuring of public sector undertakings with their privatisation reflects the pathetic state of affairs prevailing in state-owned enterprises. Forget for a moment that PSUs have miserably failed to achieve the much desired turnaround, even after pumping in hundreds of crore of rupees. Or that the return on their investments continues to be extremely poor. After failing to deliver, PSUs now are knocking on the government’s doors for a financial bailout. Steel Authority of India Ltd or Indian Iron and Steel Co Ltd amply illustrate this.

Two years ago, the government sanctioned a Rs 10,000 crore revival and restructuring package for SAIL, and a Rs 1,948 crore one for Iisco, but nothing came of either of these. Iisco has again approached the administrative ministry with the begging bowl, this time for Rs 1,100 crore. That recipients of government largesse have, by now, made a fine art of explaining away their failure is poor consolation. After sinking hundreds of crores and a series of huge loan and interest write-offs, no government can draw comfort from such explanations.
The government is now veering round to the view that real restructuring can occur only with the active participation of those keen to take over and run a potentially sick unit. Under the proposal which is being put up for cabinet approval, bidders have to first address the question of restructuring the disinvesting unit. The bidder with the smallest package for financial restructuring will qualify for the buyout, subject to the satisfaction of other conditions governing the strategic sale. This may entail some give-and-take on the government’s side, either in the form of a one time cash outgo or in the form of write-offs. Prudence and intellectual honesty warrant that disinvestment is not made into a piece-meal game. The new approach is definitely better than trying to palm off sick units without addressing the crucial question of bringing them back into the black.