Dereservation Of Psu Sectors On The Anvil

The government is set to usher in sweeping public sector reforms, including dereservation of the sectors now reserved for PSUs (apart from defence and defence-related industries) and divestment of management control in non-core PSUs through public offers, strategic sale or technology alliances in the form of joint ventures and outright sale.

The first concrete indication of the governments thinking came yesterday, when it assured the Disinvestment Commission that a fresh set of PSUs would be referred to it. This was indicated at a meeting between industry minister Sikandar Bakht and commission chairman G V Ramakrishna, during which the commission also submitted its last report on the companies referred to it. Yesterdays report brought the number of PSUs in which the commission has recommended disinvestment to 43. Strategic sale has been recommended in 20.

Over the years, the government has already dereserved several sectors which were reserved exclusively for the PSUs. The present list includes only six sectors, namely, arms and ammunition and allied defence items, defence aircraft and warships, atomic energy, coal and lignite, mineral oils, minerals specified in the schedule to the Atomic Energy (Control of Production and Use) Order, 1953 and railway transport.

Of these, only coal and lignite, mineral oils and railway transport can be dereserved. In the financial sector, only insurance remains to be opened up. The BJP has already indicated in its manifesto that it is committed to opening up the sector to domestic companies.

The Centre is also likely to permit downsizing of PSUs in which private players take a stake. However, since BJP is opposed to an exit policy in principle, it favours exploring alternatives like VRS to downsize loss-making PSUs.

Since this would require funds, the new government has broadly signalled to the departments concerned to examine the possibilities of setting up a larger disinvestment fund. The United Front government had agreed in principle to set up a disinvestment fund.

Murasoli Maran had announced that the fund would be set up with 10 per cent of the disinvestment proceeds. However, the fund, which was originally recommended by the Disinvestment Commission (albeit in a different form) could ultimately not be set up by the UF government. The indications from the industry ministry are that the government is now looking at the possibility of a much larger fund.

According to the governments gameplan, PSUs are likely to be broadly classified into three categories.

Strong PSUs will be granted total autonomy to enable them to become competitive. Financial engineering and technological/strategic alliances will be attempted for mid-level PSUs with competitive potential. The loss-making PSUs will be sold off. Significantly, this was also the strategy spelt out by the UF government, though it could only be implemented in a limited way.