Thursday, July 21, 2016

Reforms: Narendra Modi govt moves swiftly from GST, kerosene to disinvestment
July 21, 2016: Given the finance ministry’s inability to meet its disinvestment targets for the past few years, it is natural to be sceptical about this year’s R56,500 crore target—of this, R20,500 crore is for strategic divestment—being met. What could be different this time around, though, is that the government seems to be taking action on different reform fronts as well—the textiles packages is one such, there has been a lot more progress on direct cash transfers, and the latest is the 25 paise monthly hike that has been allowed in kerosene prices. As part of this process, the government has, in a sense, converted part of the NITI Aayog into the previous government’s Disinvestment Commission whose job was to make recommendations on what to do with various PSUs.

NITI Aayog is looking at a combination of outright closure, revival schemes, strategic sales in one go and lowering the government equity in a PSU to below 51%—and later doing a strategic sale. One report has already been given to the government with recommendations on closure, strategic sales and reduction in equity to below 51%—unlike in the case of the Disinvestment Commission, the reports are not public, so the names are not known, but at least 10-15 PSUs form part of this list on which action will be concluded by the end of this fiscal.

None of the obvious suspects, such as Air India, MTNL or BSNL are on this list so far, but sooner rather than later they will be—a committee has been asked to look at PSUs such as Air India where a revival plan is under way since, in many cases, the revival plans are also shaky.

Telecom PSUs, in fact, should be looked at quickly since they have valuable assets—spectrum, towers, optic fibre and, in the case of BSNL, even customers—which can be sold for a good price. As the competition intensifies, and these PSUs lose even more market share, naturally, their value goes down—this is why cynics call it privatisation by stealth! In any case, a BSNL with wages eating up 45% of revenues can never be profitable without the kind of drastic surgery that only the private sector is capable of—the same applies to MTNL which has an even higher wage-share.

In fact, as the CAG has just pointed out in its performance audit, 11 of the 34 listed PSUs have an interest cover of less than 1—67 of the 124 unlisted central PSUs have this dubious distinction—and can never be revived in a business-as-usual scenario. According to the CAG report, 135 PSUs made losses during FY15, and these rose to R30,341 crore from R22,783 crore in FY14.

Apart from what financing such losses does to the exchequer, this has to be looked at in the context of the dramatic turnaround of PSUs which were privatised, from Maruti Udyog to Hindustan Zinc—the rapid fall in the market share of PSUs also needs to be kept in mind since each day of delay means that much more of a loss for the government.

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