| Public sector undertakings (PSUs) have long been considered rich sources of revenue. Increasing dividends are taken from them by the government and when equity is disinvested, they yield handsome profits for the government.
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| However, no attempt has so far been made to evaluate the effects that all these methods of raising revenue have on the PSUs concerned.
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| Could dividends not have been retained in the undertakings for expansion and diversification? Has disinvestment of equity meant any difference to the way the public sector functions or is allowed to function?
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| The United Progressive Alliance (UPA) government has decided that there would be no ideological baggage in disinvestment. So far, so good. Disinvestment will be decided on a case-to-case basis and there will be no privatisation of profit-making PSUs.
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Loss-making PSUs will be turned around by restructuring and only if that fails, will they be sold or closed. As a statement of policy, this is all very well, but where does it leave us?
Let us look at the prevailing scenario:
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| The total investment in Central PSUs amounted to Rs 2,74,114 crore, of which Rs 89,337 crore is equity. Out of the 230 operating Central PSUs, 109 or 47.2 per cent are making losses. The total losses of loss-making PSUs amount to Rs 10,387.46 crore.
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| This is despite a budgetary support of Rs 8,896 crore (Rs 4,742 crore as equity and Rs 4,154 crore as loan), guarantees for loans and so on, that amounted to Rs 14,651 crore, waiver of loans, interest and penal interest amounting to Rs 1,830 crore, bringing the total liability on the government account to a staggering Rs 25,377 crore at the end of 2000-01. Cumulative losses of PSUs totalled around Rs 60,000 crore as on March 31, 2002.
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| Since 1992-93, the cost of reviving and/or restructuring sick PSUs has been about Rs 34,104 crore, consisting of fresh infusion of funds (Rs 5,243 crore), loans converted into equity (Rs 10,350 crore) and loans written off (Rs 18,411 crore). A few examples of PSUs being restructured time and again without any favourable result will show how futile this entire exercise has been:
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Heavy Engineering Corporation was restructured in 1972, 1975, 1981, 1989, 1997 and 1999. The total amount of waiver/fresh funds infused was Rs 1,640 crore. However, the net worth of the PSU on March 31, 2000, was minus Rs 695 crore and the accumulated losses amounted to Rs 1,152 crore.
Mining and Allied Machinery Corporation was restructured in 1973, 1976, 1980 and 1986. The total amount of waiver/fresh funds infused was Rs 134.5 crore. However, the net worth of the PSU as on March 31, 2000, was minus Rs 1,060 crore and the accumulated losses amounted to Rs 1,053 crore.
Indian Drugs and Pharmaceuticals Ltd was restructured several times during the period 1993 to 2002. The total amount of waiver/fresh funds infused was Rs 630.58 crore. The net worth of the PSU as on March 31, 2000, was minus Rs 414.43 crore and the accumulated losses were Rs 531.55 crore.
Hindustan Steel Construction Ltd was restructured between 1997 and 1999. Although Rs 471 crore was waived/infused into the company, its net worth as on March 31, 2000, was minus Rs 969.58 crore and the accumulated losses were Rs 1,071.49 crore.
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| Of the 66 PSUs that were referred to the Board for Industrial and Financial Reconstruction (BIFR), winding up has been recommended in only 18 and revival schemes have been sanctioned in 10 cases.
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| Only three PSUs have been declared as no longer sick. The BIFR is being wound up, but alternative mechanisms have not yet been established. Several companies, after their reference to the BIFR, languish for want of quick disposal.
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| The procedures for obtaining agreement to a revival or closure decision from all concerned parties must be done away with, and orders should be passed on revival or closure, depending on the viability of the companies concerned.
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Against this background, what are the options for the UPA government, given the declaration in their Common Minimum Programme (CPM)?
Here are some suggestions:
The government should immediately draw up a scheme for selling perennially loss-making PSUs. In particular, those PSUs that proved incapable of turning around despite several attempts to restructure them, must be sold as "asset sales". There are several, particularly in Bihar and West Bengal in the heavy engineering sector, whose only asset is land. There is no use trying once more to resurrect them. This should fetch handsome receipts for the government. Workers should be paid under the voluntary retirement scheme (VRS) from the proceeds of the sale of assets.
There are several PSUs, which are not perennially loss-making, but are nevertheless in the loss-making category. Here, an attempt should be made to turn them around. The management should be held accountable in case the company does not turn around despite the restructuring exercise.
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| If necessary, the government could also consider management lease deals for these PSUs. This will be a non-divestiture option that the government should explore. In particular, loss-making hotels of the India Tourism Development Corporation (ITDC) could be given on lease to private parties in exchange for a hefty consideration.
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This method will ensure that the valuable properties remain with the government and, at the same time, help to run these enterprises profitably.
This will also avoid the tortuous process of hunting up the titles to these properties and so on, a fact bemoaned by the former disinvestment minister in the media some time ago.
Then come the profit-making PSUs. Here, the government will have to ensure that they continue making profits along expected lines. If not, management leases could be thought of as an alternative for securing better profits. If these units need additional funds for investment, then government equity could be disinvested through the initial public offering route to the public, financial institutions and so on, and those funds ploughed back into the units.
The Navaratnas and the mini-Navaratnas could profit from the government disinvesting its equity to individual investors, financial institutions and strategic investors, without diluting the majority ownership of the government.
The government should declare that PSUs will be allowed to run on commercial lines, without interference from any agency or representative of the government. The former Disinvestment Commission, in its first avatar, had recommended a number of steps to ensure proper corporate governance. These recommendations are still valid. The government could do well to brush up the recommendations and ensure their implementation. The rent-seeking attitude of the ministries and their functionaries should be given up. Schemes such as price preference and purchase preference for PSUs do not help in enabling them to face competition and should not be continued.
Chief executives of the PSUs should be held accountable for poor performance, and action taken against them for acts of omission and/or commission. At the same time, they should be able to function without fear or favour and needless pressures from their controlling ministries in the government. The recommendations of the Public Enterprises Selection Board on selection of the board-level appointees should be accepted by the government without question.
Budgetary support to PSUs should be ended forthwith. The PSUs should approach the financial markets for their funding needs.
No guarantees should be given by the government for PSU borrowings. Financial institutions should not insist on government guarantees for their lending to PSUs.
The government has promised reforms with a human face. The first step in fulfilling this commitment will be to ensure that there are proper social safety nets (especially non-monetary ones) for labour that will inevitably be downsized. Mere compensation packages or commitment for retention of jobs for a specific period will not take into account the suffering faced by those deprived of their jobs as a result of privatisation. They need proper counselling, entrepreneurship training and job search assistance. The National Renewal Fund has gone into oblivion, and with it, all the non-monetary safety nets. Perhaps they can be revived now, with suitable changes to ensure better performance.
Privatisation should not mean exploitation of the consumer. To ensure that consumer interests are protected, suitable regulatory measures will be required in every sector.
Disinvestment should not mean utilisation of capital receipts for meeting revenue deficits of the government. Receipts from disinvestment should lead to reduction of debt burden of the government or should be specifically earmarked for asset creation, especially in the areas of education, public health, drinking water and transport. In his Budget speech, Finance Minister P Chidambaram stated that while disinvestment revenues would be part of the Consolidated Fund of India, in next year's Budget he would report on how the revenues have been or will be used in specific social sector schemes.
The BIFR should be wound up immediately and proper mechanisms for quick disposal of sick companies should be put in place without any further delay. This measure will affect both the public and private sector companies that are declared sick. Liquidation now takes inordinate time at the high courts. Suitable alternatives should be explored so that liquidation proceedings are time bound. This will eliminate considerable hardship for employees of the companies being liquidated.
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| (The writer is a consultant with the Twelfth Finance Commission. The views expressed here are personal) |
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