Expert Speak India Matters
Published on Jul 02, 2016
Disinvestment blues

In yet another instance of circling the drain, the government has two varied strategies in place for the vast swathe of public sector enterprises. And much of it is a dichotomy. Both lack clarity and one doesn't see any real convergence. Both walk down the path of avarice, not sustainability or material improvement. Both don't come attached with timelines and outcomes. In early June, an interesting circular from the finance ministry announced fresh norms for public sector companies, mandating minimum dividend payout of at least 30% of profit after tax or or 5% of net worth was prescribed, apart from share buyback, as the government looked to tone up the financial management of state-run companies besides maximising its revenues. At present, most PSUs pay dividend at much lower rates. In March this year, the government pushed and nudged Coal India to pay a higher than expected interim dividend. Coal India's total cash outgo on account of the interim dividend was ₹20,830 crore, comprising ₹17,308 crore dividend and ₹3522 crore for dividend tax to make up for its inability to raise funds through disinvestment in the company. The rules have also prescribed issue of bonus shares if reserves are five times or more than the paid-up equity share capital. If reserves and surplus cross 10 times the equity capital, the PSU has no option but to issue bonus shares to shareholders. Sounds good hypothetically for it means wider dispersal of shareholding and monies at one level. However, most top profitable have very closed shareholding with the government dominant.

This was followed in mid June with a Niti Aayog report submitted to the PMO identifying 32 loss-making companies for strategic disinvestment, including central public sector enterprises (CPSEs) such as M, Tyre Corporation of India, Central Inland Water Transport Corporation and Bengal Chemicals & Pharmaceuticals, et al. Of the 32 companies, 10 could see strategic disinvestment right away while for the other 22, the suggestion is to revive while retaining a subsequent option for strategic disinvestment. So, squeeze the profitable PSUs for every nickel and dime and equally throw good money after bad remains the bulwark of this confused strategic imperative. Profitable PSUs have shareholders other than the government and while they too benefit proportionately, the companies usage as a cash cow irks many analysts for the nature of constant dividend stripping and crimping of capex plans. Incidentally, after paying this years dividend CIL is left with ₹11,123 crore. In March 2014, P. Chidambaram did exactly the same thing to bridge his disinvestment shortfall — helping the government pocket ₹16,485 crore as dividend and dividend tax, which alone was 65% of entire pay out of all PSUs to the government. Curious, no? No new ideas, only regurgitating of the old.

Let us now examine the state of play empirically. At the end of March 2015, NMDC had a cash and bank balance of ₹18,443 crore, Coal India had ₹53,093 crore (now down to a paltry ₹11,000 crore and change), NTPC (₹13,000 crore), Nalco (₹4628 crore) and MOIL (₹2830 crore). Latest cash balance with OIL was ₹9,000 crore. In his budget speech, Arun Jaitley rechristened the Department of Disinvestment as Department of Investment and Public Asset Management (DIPAM) stating that it "will adopt a comprehensive approach for efficient management of the government investment in CPSEs by addressing issues such as capital restructuring, dividend, bonus shares." Post this, DIPAM has helped the exchequer garner ₹4500 crore through buy-back of shares by Hindustan Aeronautics Ltd and Bharat Dynamics Ltd in March. While HAL had cash balance of ₹17,671 crore, BDL's stood at ₹3669 crore. With public sector companies sitting on an estimated cash pile of ₹2.6 lakh crore, it isn't surprising that a capital starved govt is hunting them down one by one.

Sadly, the government's traditional disinvestment strategy of offloading minority shareholding in the equity markets isn't working. Last financial, it managed to sell stake in five PSUs — Rural Electrification Corp (₹1608 crore), Power Finance Corp (₹1671 crore), Dredging Corp of India Ltd (₹53.33 crore), Indian Oil Corp (₹9369 crore) and Engineers India Ltd (₹640 crore). In parallel, big PSUs like ONGC, IOC, Oil India, GAIL, BPCL, HPCL and NTPC have paid about ₹5763 crore in interim dividend for 2015-16 fiscal.

On the strategic sale front, greater alacrity needs to be shown instead of putting the big squeeze on the cash rich PSUs. It is creditable that the BJP seems to have bitten the bullet on IDBI Bank privatisation, but the same intensity needs to be shown across the CPSE spectrum. One hears that the government plans — "It will now look into individual cases along with their respective administrative ministries. The firms where we may get some valuations will be put on the block first." The government has budgeted a very aggressive ₹56,500 from disinvestments in this fiscal, ₹36,000 crore is to come from minority stake sale in PSUs, while ₹20,500 crore is targeted from strategic sales. In case of moribund companies, the Niti Aayog recommends quick disinvestment. The idea behind the recommendations is to ensure government gets rid of non-viable public sector enterprises as huge amount of money is sinking into these companies. It took Niti Aayog three months to submit this report to the PMO.

Government kickstarted the disinvestment programme for the current fiscal with 11.36% stake sale in NHPC. The government raised ₹2700 crore through the process. It has lined up as many as 15 PSUs, including Coal India, NMDC, MOIL, MMTC, National Fertilisers, NALCO and Bharat Electronics, for stake sale in current fiscal. During 2015-16, the government managed to notch up ₹25,312 crore through disinvestment, less than half the target of ₹69,500 crore. It had raised around ₹24,500 crore in 2014-15 by selling stake in public companies; about ₹16,000 crore in 2013-14 and ₹23,960 crore in 2012-13. It had raised around ₹14,000 crore in 2011-12 and over ₹22,100 crore in 2010-11.

What is worrisome is the slow roll out. Tourism Minister Mahesh Sharma announced as far back as May 2015 that he will disinvest through strategic sale model 14 moribund and loss making hotels. Not a single one has been sold till date. Between 1999 and 2004, the then Vajpayee government had divested its stakes in 18 ITDC hotels, Several of these generated heated controversy.

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Ritika Prasad

Ritika Prasad

Ritika Prasad Student Tata Institute of Social Sciences (TISS)

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