Cross-holding directive does not sit well with country?s energy security goal
The department of public enterprises (DPE) has recently issued an advisory for cash-rich CPSUs to buy shares of other state-owned companies to support the government?s divestment programme. Does this government strategy sit well with the national economic goals?
The basic problem is that the government does not have a consistent policy about the public sector. It wants central public sector undertakings (CPSUs) to step up investment as the country is facing a difficult external environment and is looking to domestic drivers of growth. But at the same time, the government also wants cash-rich CPSUs to buy shares of other state-owned companies and make successful the government?s divestment programme. Obviously, the two cannot go together.
The government has targeted a disinvestment mop-up of R30,000 crore for the current fiscal, down from the foolishly ambitious R40,000 crore in the previous year. The goal for the current year also looks impractical, and its means, counter-productive.
At a SCOPE function in January this year, ie before the latest Budget is presented, Prime Minister Manmohan Singh exhorted CSPUs to step up their investment to offset the impact of a weak global economic environment on the country.
?Public investment is particularly needed at a time when the country is facing a difficult global environment, and looking to domestic drivers of growth. I am extremely happy to learn that 17 of our largest CPSUs have committed to investment plans amounting to R1.40 lakh crore in the coming year. I would encourage the remaining CPSUs also to similarly pay attention to boosting the capital investments. These efforts must also be properly reflected and rewarded through the memorandum of understanding (MoUs),? Singh said.
The prime minister also called upon CPSUs engaged in mining natural resources to explore opportunities for acquisitions abroad. ?Investment in the CPSU is concentrated mainly in manufacturing, mining, electricity and services. I would urge our CPSUs, especially those in the field of the mining, to seriously explore opportunities for such acquisitions,? the PM said.
However, CPSUs need the cash reserves to meet their investment goals. If they spend their money on acquiring shares of other CPSUs, their investment plans would suffer.
India needs to grow at 8-10% annually if it wants to lift its population out of the poverty. But for that, India needs to have access to energy and natural resources. Companies like ONGC, Oil India, Coal India, NMDC and RINL need to utilise their cash reserves to acquire assets overseas to secure future supplies of resources to support the country?s long-term growth objective.
Natural resource-guzzling CPSUs like Steel Authority and NTPC need to buy coal assets to secure their fuel supplies. Significantly, the government has also set up a coordinating committee of secretaries to facilitate acquisition of natural resources by CPSUs overseas.
Bhel, which is on the government?s divestment radar, needs money to diversify into new business areas to support its existing business.
It is obvious that the government?s proposal to pursue cross-holding among CPSUs does not gel with its strategic goal of securing supply of resources to ensure future economic growth.