With XI Jinping carrying out a relentless purge against corruption in the top echelons of the Chinese military establishment, including going after the second most powerful man in the Chinese Military Commission which controls the entire gamut of Chinese Armed Forces, the fissures which have always been papered over in China since Deng Xiao Ping's days are now out in the open. And the war on corruption in high places which has already consumed 15 top ranking functionaries has also thrown into relief the asset bubbles that have crept into the Chinese property and construction space.
Ghost buildings now dominate the landscape in large swathes of China, the economy imperilled with mountains of debt. China has been reset, with its very state uncertain. It has to bone up the quality to stay relevant and prove the Cassandras wrong. The tree has been shaken and also the world along with it. This makes you wonder how a country with three trillion dollars in foreign exchange reserves has got it wrong.
Years of scorching growth without paying adequate attention to the risks involved has meant that the overheating economy has finally blown a safety valve or two. With the 1200 pound gorilla lurching, the seismic shocks have been felt across the world. But curiously this hasn't stopped Xi Jinping whose battle against the corrupt hasn't lost any ardor.
So, the adage almost as old as the Aravali Hills says that adversity is an opportunity. Another saying very much pertinent for India goes like this - politics is the art of postponing a decision till it is no longer relevant. The time to take a punt is now in India. If India wants to become the favoured investment destination in the wake of a collapsing China, then it needs to move with alacrity on reforms. These reforms need to go beyond the obsession of legislative changes which in any case face the tyranny of numbers in the Rajya Sabha. There is no better time for India and the BJP to swing into action, leave behind its maladroit and clumsy ways over the last 15 months and capitalise on the Chinese rout.
The yuan devaluation will play out and its impact on India is deleterious, but equally if you show the world that this is the only place to fry your fish by ponying up, then it could be India's greatest triumph. In the revolving door of global economics, China is definitely out for the moment and India very much IN.
Policy mavens need to man up. They have no choice if they are to stay relevant. Yes, insulate yourself from global headwinds but in parallel think transformative. Forget the text book plays, change your entire playbook, junk it if you have to. Look at the Indian Oil Corporation Offer for Sale on Monday, what did we achieve? Other than shouting that we have added Rs 9300 crore to the disinvestment receipts, materially nothing has changed. For there was no wider dispersal of shareholding, the same old domestic institutions were asked to bail out an issue which went ahead on manic Monday. This means that the money moved from the right to the left pocket in the Consolidated Fund of India, there was no retail participation or a wee bit if at all. All this happened on a day when FIIs sold Rs 5275 crore of equities, arguably a record single day sell off, while the domestic institutions were told explicitly to arrest the slide bought Rs 4100 crore of Indian equities.
In gravity defying times, disinvestment has to go back to the strategic sale or asset sale model. Don't sell profit making entities if that is unpalatable, but do look at the wasteland of loss making companies which have land parcels and other assets but have fallen by the wayside inconsistent with modern construct. Tea, tyres, salt, scooters, watches, cement, bearings, cables - the vast swathe of government enterprises involved in the manufacture of these products is sick to the core. But their owner - the government of India - refuses to accept this fact and continues to brazen it out. Even as the finance ministry ponders over raising revenues through disinvestment receipts by hawking small tranches of equity to investors, plans and stratagems to revive these sick public enterprises have remained in the realm of conjecture or on drawing boards.
These relics of socialism continue to bleed, ensconced in intensive care on taxpayer's life support. Sometime in 2012 I remember, the department of heavy industry moved a proposal in the Cabinet to disinvest the ailing Scooters India, but it was shot down in a trice. The Board for Reconstruction of Public Sector Enterprises (BRPSE) recommended an action plan to revive Scooters India. The modus operandi was to reduce/transfer of entire government equity to a suitable identified strategic partner through the department of disinvestment. In fact, realising the gravity of the situation, and in order to implement the Cabinet decision, a resolution seeking Parliamentary approval to facilitate induction of a strategic partner for revival of SIL was moved and listed during the Monsoon session in 2011.
As with all things with UPA 2, vacillation and indecision meant that the department of heavy industry withdrew the resolution. As the company began to show some promise once again during 2011-12, it was decided to revise the proposal approved by the Cabinet on May 19, 2011. A reference was made to the PMO and the PMO directed that the revival proposal should be taken to the Cabinet. A joint study was carried out by Automotive Research Association of India and Scooters India and based on these inputs, all bets have been off since. This is a microcosm of a larger malaise affecting public enterprises.
From Tyre Corporation of India Ltd to HMT to Heavy Engineering Corporation to NEPA to Nagaland Pulp & Paper Company to Cement Corporation of India, the list is endless as all of them await government dole instead of monetising the assets in these companies. The Praful Patel headed Heavy Industries ministry at that time had actually worked out a plan to put close to 200 acres of land under Scooters India in Lucknow's Amausi Industrial Area on the Lucknow-Kanpur NH-25 on the block, but this too was reversed as part of the larger plan to revive instead of selling these sick companies.
Till such time as their managements are not extricated from government fetters, the task of reviving these sick PSUs is impossible. The attempt is to stall revival through disinvestment or strategic sale, and instead focusing on providing a restructuring model using budgetary support, cash infusion and financial restructuring is a self defeating exercise.Once again, making a case for shoddy management is being rewarded by the government because it doesn't want to bite the bullet. The question is whether these ossified companies are good enough to compete in the contemporary marketplace. The answer is an emphatic NO.
The Board for Reconstruction of PSEs has given a wide variety of proposals which go beyond the department of heavy industries. From the ministry of mines to shipping to defence to steel to textiles to pharmaceuticals to chemicals and petrochemicals to fertilisers, to scientific and industrial research to coal to agricultural & cooperation to railways to water resources to housing and urban poverty alleviation to information and broadcasting to petroleum and natural gas, the list of companies abounds with financial fatigue and sickness almost being a way of life with them. The old adage of government having no business to be in business holds good. But political and government patronage persists. Go back to asset sales, tell the world you mean business.
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