What after VRS for sick PSUs?

There needs to be a process to decide for strategic sales and/or revival; On Wednesday, the CCEA approved a VRS at 2007 pay scales for employees of HMT

The government’s decision to go ahead with Voluntary Retirement Schemes (VRS) for distressed state-owned companies is a good move but will have to be followed by further action in terms of reviving or strategically selling a large number of sick public sector units (PSUs) say policy watchers.

On Wednesday, the Cabinet Committee on Economic Affairs approved a VRS at 2007 payscales for employees of HMT Watches, HMT Chinar Watches and HMT Bearings, completing their closure formalities and bringing the curtains down on an iconic brand of the pre-liberalisation days.

Before this, the Cabinet had also approved a VRS for employees of Kolkata-based Central Inland Waterways Transport Co. and Tungabhadra Steel. It has planned one for some other sick PSUs, including Hindustan Cable.

The VRS schemes for these companies are good steps that have been taken to reduce the burden on the exchequer. However, these are low-hanging fruit and bigger steps need to be taken with regard to some other PSUs, including strategic sales. It has to be a gradual approach,” said N R Bhanumurthy of the National Institute of Public Finance and Policy.

Officials, including in the government, say such an approach will come through a Disinvestment Commission. For 2015-16, Finance Minister Arun Jaitley budgeted a disinvestment target is Rs 69,500 crore, of which Rs 41,000 crore was expected from five to 15 per cent stake sales in profitable and listed PSUs and Rs 28,500 crore from strategic stake sale of sick state-owned companies. While the former has gone ahead, albeit at a less than satisfactory pace, there has been absolutely nothing on strategic sales.

In Parliament’s previous Budget session, Heavy Industries Minister Anant Geete had laid a list of 65 loss-making state-run companies. These included Air India, Fertilizer Corporation of India, Hindustan Shipyard, HMT, Mahanagar Telephone Nigam, Bharat Coking Coal, ITI and Scooters India.

The government was said to be putting final touches to a policy framework to sell or revive loss-making state-owned companies. Including formation of a Disinvestment Commission, to be tasked with deciding whether a company can be revived with additional capital funding, its financial health could be improved by ceding part of the stake and control to private sector investors or whether it needs to be divested forthwith.

In the case of non-listed and distressed PSUs, the Commission might decide on asset sale of factories, office space, warehouses, land parcels and other facilities. "The proposed Disinvestment Commission's aim is to bypass the bureaucratic hurdles associated with such decisions and carry out strategic sales or revival in a time-bound manner," said a senior official.

The official said it would be now a political decision. "There is a need to get this Commission functioning. Some PSUs are so distressed that if their assets are sold separately, they would fetch more money than what these companies are worth," said the official, who did not wish to be named.

Sources had told Business Standard the Commission would be headed by the cabinet secretary and consist of the secretaries of departments of disinvestment, public enterprises and economic affairs, alongside those of line ministries whose PSUs are up for deliberation. It is understood the first assets to go under the block would be hotels belonging to India Tourism Development Corporation.

Apart from deciding whether a financially distressed PSU needs to be sold or not, the Commission is also likely to decide on the method of selling. If the Commission decides an unlisted entity needs to be divested forthwith, monetising its various assets could be the preferable route. Its decisions might have to be cleared by the cabinet.