Instead of trying to sell the PSUs, the government would do well to follow the Singapore-style model of efficient control
By Thankom Arun and Reji Joseph
In the time of a crisis, one looks for a budget with clear direction on resource mobilisation and plans for spending. One of the areas which require attention is the process of selling public sector undertakings (PSU) to raise resources. The support for disinvestment is based on the argument that the performance of PSUs can be improved by exposing them to market forces. However, the Economic Survey admits the missing issue of “professionalism in the disinvestment programme to improve returns on investment and unlock capital for priority areas like infrastructure”. The survey argues for aggressive disinvestment of PSUs, citing improvements in profitability and efficiency of sold units. It is equally important to ensure the safeguards against exploitation of monopoly power and wider social costs owing to disinvestment. Recently, BSNL slashed 80,000 jobs, citing employee costs growing to 75% of the total revenues. Globally, privatisation has raised a host of concerns.
Since 2014, Modi government’s strategic disinvestment approach was to sell minority stakes in PSUs to raise revenues, but the government kept management control. During the period 2014-19, the government raised Rs 2.8 lakh crore from disinvestment, compared to Rs 1.07 lakh crore collected during 2004-14. However, this has changed. Recently, five companies, including BPCL, CCI and SCI, have been put up for 100% disinvestment. This is in addition to the proposed sale of Air India, and the sale of IDBI and LIC.
The timing raises questions on the intention of PSU reforms. Is it being done to address fiscal deficit? PSUs still exist in many countries and have played an important role in shaping the economy. The restructuring needs to have a clear vision and strategy. PSUs will play a major role to achieve a $5 trillion economy. The IEG evaluation of World Bank Group Support for the Reform of State-Owned Enterprises (2018) shows an estimated $8 trillion as SOE global revenues-equivalent to the combined GDPs of Germany, France and the United Kingdom.
The survey suggests a sovereign investment arm on the lines of Singapore’s Temasek Holdings. Temasek is very different from Singapore Government and has the power to make independent business decisions. Furthermore, they support community programmes. This sort of organisation is needed to bring professionalism to our PSUs. On the other hand, even after a long period of reforms, the Chinese SOEs still seem to be highly over-leveraged and structurally less efficient than their private-sector counterparts. But they are still the main pillar for China’s growth and its holding company SASAC (State-owned Assets Supervision and Administration Commission) competently manages SOEs. Most of the restructured SOEs are legally separate from the government with high standards of corporate governance. SOEs account for 30% of Chinese GDP and their share in the Fortune Global 500 has grown to 23% in 2015. The Chinese government continues to support SOEs in strategic sectors such as energy, telecom, aviation and defence.
The Singapore model has completely moved away from the government for business decisions, which may not be possible in China. But in both cases, public sectors have become globalised in terms of their operations. In India, the real question is that whether do we have a genuine concern to improve the public sector or the interest rests with raising revenue only? It is obvious that SOE boards have struggled to play a leading role in developing a strategy, appointments etc. Moreover, the inability to exercise the authority limits the functional autonomy of PSUs.
Considering the mammoth infrastructure of PSEs, there is a scope for developing start-ups using their unspent resources. PSUs should open their premises for fresh thoughts and new technology. This type of collaboration would be mutually beneficial for PSUs and start-up ecosystems.
Unfortunately, the draft industrial policy does not have a clear strategy towards this transformation. The success of Isro shows that PSUs can be as competent and play a lead role.
Arun is professor, University of Essex, UK and Joseph is associate professor Institute for Studies in Industrial Development, New Delhi