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Modi govt must learn from Vajpayee on how to generate wealth from disinvestment in PSUs

The Atal Bihari Vajpayee government’s disinvestment record has still not been matched by any government. UPA government’s record has been relatively pathetic.

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The Narendra Modi-led NDA government’s move to sell its entire stake in Bharat Petroleum, India’s premier oil refining and marketing company, has raised the opposition’s temper. The government will also sell its stake in four other public sector undertakings or PSUs, making it appear like a big bang move, something desperately lacking in the last five years.

Shipping Corporation of India (SCI), Container Corporation of India (CONCOR), Tehri Hydro Development Corporation India Ltd (THDCIL) and North Eastern Electric Power Corporation (NEEPCO) will be the ones to go under the hammer.

Air India is also getting a fresh impetus from Modi government’s disinvestment plan after earlier efforts failed to get any enthusiastic response.

“How can the family silver be sold,” the opposition has argued, particularly in the context of Bharat Petroleum or BPCL. That is the wrong question to ask. Nearly three decades after architecting economic reforms, the Congress cannot be seeking answers to a question like that.

The opposition parties have been barking up the wrong tree. In the heat and dust of the 2004 Lok Sabha election, the Congress-led UPA had raised the issue of disinvestment and managed to defeat the BJP-led NDA government’s ‘India Shining’ campaign.

Among the first things that the UPA government did after Manmohan Singh became the Prime Minister was shut down the disinvestment ministry. It was turned into a department in the finance ministry, relegated to the periphery, some would say.

Also read: Modi govt disinvesting in PSUs crucial but here’s why privatisation is easier said than done

Lessons from Vajpayee govt

The process-oriented approach to selling off the ‘family silver’ was not quite learnt by India’s political leaders. Atal Bihari Vajpayee-led  NDA government had managed to sell equity in Videsh Sanchar Nigam Ltd. or VSNL and hawked its holding in Maruti Suzuki to allow wealth generation. ONGC, BALCO, Hindustan Zinc and other companies were also sold during the same period, under then-disinvestment minister Arun Shourie.

The results are there to see. Left to vagaries of the markets, Maruti Suzuki is now one of the biggest wealth-creating companies in India with more than Rs 3 trillion market capitalisation. VSNL was sold off completely and the Vajpayee government managed to create value for itself from a PSU that would have been a dud if it had held on to its stake. BALCO and Hindustan Zinc have also created smart value for the government after Vedanta Group took control over them.

Finance Minister Yashwant Sinha in the Vajpayee government had also mooted the idea of cutting down government stake in PSU banks to 33 per cent. That has still not happened as the Modi government has been stuck at the proposal of 51 per cent even as these banks have been among the biggest wealth destroyers. Nearly two decades later, merging select PSU banks, as announced by Finance Minister Nirmala Sitharaman, has not enthused the markets.

Also read: Narendra Modi finds his inner Margaret Thatcher with disinvestment

Modi govt’s inaction

The big failure has been the operational management of PSUs MTNL and BSNL (and ITI), and the approach of successive governments has been a big disappointment. India has more than one billion mobile phone subscribers but the fortunes of the Modi government has dipped as the telecom sector has exploded. It has been nothing short of a disaster.

MTNL, which once used to be traded on NYSE, was delisted in 2012. The two telecom PSUs can be cited as the best examples of government inaction when they should have been the top priority.

It is telling that more than half of BSNL employees reportedly want voluntary retirement. The employees see no future in sticking with the company. The Modi government needs to find a way out.

The Vajpayee government’s record of disinvestment has still not been matched by any government. The UPA government’s record has been relatively pathetic. Under the watch of both former PM Manmohan Singh and current PM Narendra Modi, shares of one PSU have been sold to another for the disinvestment numbers to be made-up. This practice hardly inspires confidence among investors.

Also read: This is the process Modi govt will follow to sell its stakes in 3 PSUs

Way forward

The Modi government needs to now take a time-bound call on how it can sell its stake across sectors and create value. As it stands, the government has its finger in every pie — on air (Air India, HAL), in water (Shipping Corporation, Cochin Shipyard), on land (Scooters India, Cycle Corporation) and on rails lines (CONCOR, rolling stock manufacturing companies).

Here’s one suggestion – invite big investors from around the world. Spin off the land beneath the 115,000 kilometres of rail tracks into a separate company, and sell off a part of that company to one of these funds, let’s say an anchor investor. Since goods and passenger trains run over these tracks – the second largest network in the world, the company will get assured business each year. Clear visibility to the fund for its cash flow over the next few decades will make it an enticing offer, assuring their investors return on capital.

Indian Railways earned ₹69,889 crore from freight traffic between April-October 2019, including ₹9,536 crore in October 2019. Add revenue from passenger traffic to that, put a 20-year discounted cash flow to make it a mouth-watering long-term investment.

Imagine, PM Modi making an announcement that the government will identify select sectors where it will finalise a blueprint to sell its entire stake over a pre-defined period. It is that 10-year vision that will help realise his promise of ‘minimum government, maximum governance’. Disinvestment needs that simple vision. The details can follow.

Also read: Fiscal stress offers Modi govt great opportunity to push disinvestment

How about a conference call this week to set the ball rolling?

The author has been a business journalist, having tracked markets & economy across print & television media. Views are personal. 

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  1. The print bhi capitalist ke haath ki katputli ban gaya kya news channels ki tarah. Why sell profitable psu. They are giving profit to government. Selling profit making psus is foolishness. Why are you supporting disinvestment of profitable psus.

  2. Government should not be in any business. It should only control the companies as legal authority to look after the illegality if any happening in any company. All companies should run under efficient private personal under government strict observations.

  3. Government should not be in any business. It should only control the companies as legal authority to look after the illegality if any happening in any company. All companies should run under efficient private personal under government strict observations.

  4. Soon extreme left wing Marxist Modi will nationalise families as well. Government will start interfering in private affairs of individuals and families through societal controls.

  5. Why not disinvest armed forces too. ? New contractor will bring it’s own men & machinery & Govt will save on pension also. Rules of western countries don’t suit countries like India where resources are few while population is huge. Reforms are necessary but it dosent mean a few may be allowed to turn economy favourable for crony capitalism.

  6. Vajpayeeji se toh bahut kuchh seekh sakte hain. Disinvestment bahut chhoti cheez hai, almost a technocratic exercise.

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