Divestment Policy Faulty
An ADB-NCAER workshop on economic reforms yesterday concluded that bids for PSU shares would have been significantly higher had there been a clear commitment to dilute government holding below 25 per cent in a time-bound manner.
The government's decision to retain majority control of "core" PSUs has not only constrained disinvestment but has also dampened bids, the study concludes. The government's decision to retain 26 per cent ownership in most "non-core" PSUs also came under attack. "Everyone knows the rationale behind 26 per cent stake: to block special resolutions," the study says. "Since this is perfectly understood by all market players, why should they be expected to pay a high enough price for such companies?"
These findings assume significance in the light of growing crtiticism regarding the government's approach to disinvestment in PSUs like GAIL, Concor, VSNL and MTNL. The government's decision to price the forthcoming Concor GDR issue at a substantial discount has also been opposed by domestic financial institutions and merchant bankers. According to the study, the government's insistence on at least 51 per cent ownership of core PSUs has hurt the disinvestment process on three counts. First, it has circumscribed the price bids and so affected its own non-tax revenue. Second, the government has made transparent that the objective of limited disinvestment is exclusively to obtain funds to cover an the revenue deficit. Third, it has signalled a lack of commitment towards creating a more conducive atmosphere for efficient governance of public enterprises.
The findings vindicate the Disinvestment Commission's stand regarding a clear-cut and credible time-bound disinvestment programme.
"Poor governance" as a result of government ownership and control has been indentified as the root cause of the extremely poor performance of the PSUs over the years. "Unless government control is eliminated, we cannot expect performance to improve," the study says. "One way of achieving this is by privatisation. However, privatisation can only work if it is accomopanied by a complete elimination of government control."