June 23 was to be a red-letter day in India's efforts to sell public sector undertakings but it was yet another damp squib like other efforts to deal with the subject. Instead of the prime minister silencing his ministers' opposition to privatisation, the government chose to appease them through silence. The meeting ended with an 'in principle' clearance to divest 11 more PSUs even while 19 others cleared earlier await the appointment of international advisors. Sensitive decisions about divestment of oil, telecom and automobile companies were simply deferred and the meeting ended with a fake picture of consensus.
While the government dithers and vacillates over its decision-making, time is running out on these large monoliths which were once described as the 'Temples of Modern India'.
The temples are in ruins and the already high cost of building them is getting higher in running them. They are unable to deal with competition and cheaper imports and are often not even allowed to switch to better technology. Having sunk vast amounts of public money in chasing the mirage of perfect socialism for over forty years, the neta-babu nexus is now happy to allow them to sink.
Let us look at a few examples of what is happening. At a public meeting last week, Arun Jaitley, the minister for divestment, said the country had invested Rs 32,500 billion in central PSUs alone. This does not include banks, insurance companies and financial institutions which were largely acquired from the private sector through nationalisation and by paying niggardly and unfair compensation.
Today the bad loans of banks and institutions alone have touched Rs 600 billion. One PSU alone, said Jaitley, has lost Rs 80 billion and continues to have 18,000 employees. This is just a little short of what the Rs 100 billion that the finance minister is struggling to raise through privatisation.
Sick PSUs which are completely defunct are never allowed to die. Instead they gobble up over Rs 30 billion of public funds as the government continues to pay wages, bonuses and even increments to the workers. Though the factories are shut, the employees make a daily pilgrimage to retain their right to a monthly pay cheque, the sub-contracting of this pilgrimage is also rampant, while the regular employees have all set up small businesses or have obtained alternate employment.
Some of the big loss-makers such as the Steel Authority of India continue with low productivity and excessive employees, but they have acquired all the modern trappings such as a fleet of executive aircraft for top management to zip across visiting various mega plants. At the same time, the company's share trades today at a pathetic Rs 7.
Maruti Udyog, the passenger car company set up to humor Indira Gandhi's pampered son Sanjay, is another example where the government hangs on to its 50 per cent stake even when competition and technology are rapidly eating into its market share.
Bad decisions and government interference have seen the market capitalisation of PSUs drop so dramatically in the last two years that only two out of the top ten companies by market cap are now PSUs, as compared to eight out of the top ten a couple of years ago.
The combination of politicians and bureaucrats who see PSUs as rich fiefs and trade unions' fears of retrenchment work together to prevent the implementation of a sensible privatisation programme.
The government demonstrates its lack of seriousness by projecting as an accounting device to sell assets and raise funds to bridge the deficit. There has been no attempt to address any of the issues raised by employees who are going to be worst affected.
For instance, the Divestment Commission which had been set up by the United Front government in 1996 had recommended a holistic approach to the process and the creation of a Divestment Fund out of the proceeds of PSU share sales. The money was to be used to build 400,000 houses (cost: Rs 10 billion) and 100,000 schools (Rs 10 billion). The rest of the money would go towards funding a generous Voluntary Retirement Scheme and to reduce public debt. Its recommendations have been ignored and the Commission itself dismantled after its original term.
Another flaw with the present approach is the effort to preserve the 'public sector character' of these companies. In fact, PSUs simply cannot attract investors until they are assured that the government will butt out of their business.
Proposals such as 'a golden share' which give veto powers to government to stall decisions and allow it to meddle in management will only drive away prospective investors. Also fanciful schemes pulled out of various babu hats from time to time will not work either. What is needed is a white paper and a three year road map with precise milestones for divestment, otherwise the nation will continue to nurse the industrial ruins which once spearheaded our industrial development.
It's now official. The Chief Justice of the Supreme Court has said that over Rs 500 billion of government money is stuck in legal disputes. He also suggested that a large chunk of these disputes could easily be resolved through arbitration or approaching the Lok Adalat. Here too, the important issue is not the vast amount of money that is blocked up. The bigger problem is the lack of accountability and autonomy enjoyed by government banks and institutions.
These institutions would rather allows disputes to languish in court than settle them, because any dynamic decision making can be questioned by the central investigation agencies such as the Central Bureau of Investigation. Not making any decision and allowing the dispute to drag through the court, however, is never questioned