We need privatisation, not PSUs buying PSUs

By: |
September 29, 2020 4:00 AM

The CAG has rightly come down on the policy of getting one PSU to buy another; hopefully, this practice will stop

Indeed, ONGC needed to leverage itself for almost the entire amount, in the process pressuring its balance sheet.

Compared to the first BJP government, under prime minister Vajpayee, the current NDA government has had little success with the privatisation of PSUs. To be sure, it has netted substantial amounts from disinvestments—including a chunky Rs 1 lakh crore in 2017-18 and close to Rs 95,000 crore in the following year. But, of the Rs 1 lakh crore that it earned in 2017-18, more than a third or Rs 37, 000 crore came from the sale of oil retailer HPCL to explorer ONGC, a transaction that can’t really be called a strategic sale and certainly not privatisation. Indeed, ONGC needed to leverage itself for almost the entire amount, in the process pressuring its balance sheet.

Such transactions—where one PSU is buying out another—have attracted adverse comments from the CAG. The auditor has observed that the transactions for 2018-19 resulted in a transfer of resources already with the public sector to the government and did not lead to any change in the stake of the public sector or government in disinvested PSUs. That is correct; they are merely money-making measures.

Indeed, the NDA continues to struggle with the sale of Air India despite having initiated the process nearly three years ago. Initially, it was deluded into believing buyers would not object to the government retaining a 26% stake or to the huge workforce that needed to be retained for some time. Once it became clear there were no takers on those terms, the government sweetened the deal saying, in January, it would sell 100% in the carrier; it has also transferred out a big portion of the debt from AI’s books. While the pandemic has delayed the process, the fact is buyers don’t want a bloated workforce; unless the government can address this problem, a deal is unlikely.

Again, rather than foisting the beleaguered IDBI Bank on an unsuspecting LIC and its policyholders, the government should have sold it to the highest bidder. Such a sale would not have required parliamentary approval, and the lender would have been saved from collapse without hurting LIC’s balance sheet. It is one thing for LIC to be bailing out the government in an OFS—even that is unacceptable—but using policyholder money to rescue a failing bank was altogether unwarranted.

In fact, it is surprising the insurance regulator permitted the deal. In 2019-2020, the divestment proceeds came in at Rs 65,000 crore, falling short of the targeted amount with the government unable to complete the stakes sales in Air India and BPCL. It is going to be even harder to hit the target of Rs 2.1 lakh crore for 2020-21 given the disrupted environment; the target includes a combined Rs 90,000 crore to be raised from an IPO in LIC and a stake sale in IDBI Bank, which has a current market cap of Rs 36,384 crore.

The government needs to have a bolder approach to privatisation; it needs to completely exit many more PSUs rather than supporting them at the cost of the taxpayer. Or, it should shut them down completely and use the proceeds from asset sales to offer employees a VRS. But, throwing good money after bad for years—as has happened with Air India—is unfair to taxpayers. It must continue to pare its stake in the larger PSUs—Coal India, for instance—at regular intervals.

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