UP picks up the divestment baton for bleeding state-run firms

Written by Deepa Jainani | Lucknow, Aug 30 | Updated: Aug 31 2008, 07:43am hrs
Uttar Pradesh is on the path of a major fiscal correction. With the disinvestment committee identifying as many as 30-odd sick state corporations that should be passed on to the private sector in its first report way back in 2000, the Mayawati government has now started the process in the right earnest. In the initial phase, the government has identified sectors that bleed the state exchequer mostsugar, transport, health, technical education and transport.

The sugar sector, for example, is the most politically volatile and sensitive sector, due to which the state government ends up paying extra than any other state. Speaking to FE, a senior official of the state government revealed that every year, the state exchequer ends up with a loss of Rs 700 crore due to sugarcane pricing only. UP is probably the only state which pays sugarcane farmers very high rates. This year, too, the same process has been repeated, with UP fixing the State Advised Price (SAP) for sugar at Rs 125 per quintal. However, the matter was taken to the courts, which only last week ordered that mill owners should pay cane growers at the rate of Rs 86 per quintal as fixed by the Centre. Apart from this being very confusing, as much of the payment have already been made in accordance with the earlier interim order of the Lucknow Bench that had fixed cane prices at Rs 110 per quintal, it also means that the state, in order to keep its political equations right, often indulges in policies that do no make sound financial sense, he said.

Apart from sugar pricing, the fact that many of the sugar mills, owned by both State Sugar Corporation and co-operative sector, are old and loss-making, and face the problem of overstaffing. A total loss of over Rs 850 crore is incurred by the sugar sector alone, revealed the official.

As a way out, the government has set out for a strategic transfer of shares in all 33 units owned by the Corporation and the 25 co-operative mills. With the units running in loss and salaries of the employees becoming irregular, even the employees have become tired of these mills. This makes the ground perfect for disinvestment in the sugar sector, he said.

The ailing state tourism sector, too, is facing a similar predicament, with as many as 45 of the total 77 units running at huge losses. Here too, political considerations, rather than business feasibility was the reasons behind them being set up. It is interesting to note that as many as 25 tourist guest houses out of 77 are lying ready for 3 to 10 years, but have yet not been taken over by the tourism corporation. The main reason behind this being that many of these units have been constructed without having feasibility tests done. Different political dispensations, in an effort to please their electorate, ordered that hotels and guest houses be built in their home constituencies, without bothering to see the viability of the destinations as well as the logistics of the place. For example, guest houses at places such as Deoria, Basti, Gonda, Gorakhpur and Etawah hardly make sense.

However, the earlier stand of the state government to hive off only the loss-making units to private hands received a very lukewarm response, with experts opining that the state government must put the 30 profit-making units also for disinvestments.

Apart from these two sectors, the state government is actively looking forward to hand over the health, technical education and transport departments to the private sector as per the public-private partnership mode and work on this is already in progress. The government sees an urgent need to mop up the states resources by selling off the loss making units. This way, not only will the government be able to right-size its finances, but also embark on other important developmental work that has been pending due to financial crunch, the official stated.