The government of India directly owns 85.82 per cent of the country’s largest steel producer, SAIL, which has caused a surprise of the pleasant kind by emerging as the most profitable in its genre of the world industry. The ownership of the government would be even more if the holdings of financial institutions and banks are considered. We are not taking stock of that now.
Both for the size of its holding and the prospect of netting good money from the sale of a portion of that, the proposed direct disinvestment, besides the dilution of government ownership to happen from SAIL expanding capital through a follow -on public offer, is a move that should set the agenda for many such future actions. The success of the United Progressive Alliance, particularly its dominant constituent Congress, in the three state polls, Maharashtra, would encourage the government to now go ahead with disinvestment with speed and purpose.
Unfortunately, however, the prime minister has to contend with dissenters from both within his party and allies holding ministries as he tries to take this important piece of reform of the public sector forward. An ardent proponent of the government co-owning PSUs with others, Manmohan Singh reiterated the other day the government’s commitment to get companies in its domain “listed on stock exchanges.” Hopefully, there would be no cowering to the protests from trade unions and the Left.
The central trade unions planning nationwide protests against the proposed disinvestment in SAIL and other PSUs need to appreciate that the government has come to own so many companies in a wide range of industries because in the earlier decades infrastructure was sparse and it was also not within the capacity of the private sector to undertake ventures of the kind of SAIL and BHEL. Not only has the profile of the private sector changed completely since but Indian industry is also benefiting from foreign direct investment.
How would one know the value of an enterprise unless its shares get listed on a stock exchange and come for trading? Three things happen in the event of disinvestment in a PSU. Besides unlocking the true value of the enterprise, disinvestment leads to better corporate governance and undertaking of greater corporate social responsibility.
Take the case of SAIL, which is in the midst of expanding hot metal capacity by about 12 million tonnes to 26.2 million tonnes in the next three years. Chairman Sushil Roongta is taking advantage of the highly capital intensive growth initiative to “put maximum thrust on value addition and product mix improvement and modernisation of existing assets.” So by 2012 when the programme is completed, SAIL would have started making larger volume of products from commodity steel. This would result in boosting revenue and profits per unit of steel made and sold.
No point in guessing what exactly would be the cost of SAIL’s expansion-cum-modernisation programme since Roongta has told his officers to drive a hard bargain while placing orders for machinery to take full advantage of the prevailing low demand. Even then, SAIL investments would be among the highest in the industry and these, according to Roongta, would have the effect of “enhancing long-term stakeholder value.”
The revenue to come to the government as it dilutes its holding in SAIL would get credited to the National Investment Fund, which supports social sector initiatives. And to the extent that SAIL would be issuing new shares, the funds to be collected from the exercise would support expansion work.
So where is the scope to protest if it is not from some unjustifiable fear that any dilution would compromise employee interest. In the case of SAIL, expansion for which new capital through public offer is a good fund raising option as it would create many opportunities for workers to scale up their skills.
Steel minister Virbhadra Singh has given a demonstration of his commitment to allowing a “great measure of autonomy and no interference at all in the day to day working of PSUs under my charge” by piloting the SAIL disinvestment programme up to this point. “I see my role in giving broad guidelines to units reporting to my ministry,” says Singh. The steel minister is acutely aware that to draw out the best in SAIL or Vizag Steel or NMDC, it is important that he gives them meaningful freedom.
Whether it is SAIL or any other steel maker here, the need for periodically raising the efficiency bar cannot be overstated. Besides revenue consideration, the government is right in believing that disinvestment sends out the message loud and clear that PSUs must improve their global competitiveness as foreign companies would all the time be snapping at their heels.