Kanika Datta: In light of DIPAM

So now we are to have DIPAM, or the Department of Investment and Public Asset Management, which Finance Minister Arun Jaitley explained in his Budget speech, "will adopt a comprehensive approach for efficient management of government investment in CPSEs [Central Public Sector Enterprises]. At the same time, the NITI Aayog will identify CPSEs for strategic sale, he told the Lok Sabha.

The DIPAM-NITI Aayog combo makes it the third iteration of the institutional set-up to oversee the sale of government stake in public sector units (PSUs); the management advisory role invested in DIPAM is the new element. Will this new organisational structure radically alter disinvestment dynamics or the nature of the government's role in public sector management?
 

The question is worth asking because India's disinvestment programme has had a tortured history of serial underperformance. Confused objectives, complicated procedures, the habitual slo-mo pace of government functioning and serial stockmarket scams have contrived to ensure that over the quarter-century of disinvestment, the Government of India has managed to garner a modest Rs 1.9 lakh crore from disinvestment.

The government met or outperformed targets in only four of the 20 years in which specific targets were set - and one year, this achievement was heavily qualified because it included cross-purchases between public sector units. (No targets were announced between 2005-6 and 2009-10, owing to controversies spilling over from the previous regime, though disinvestment proceeds were fairly decent in some of these years.)

Through most of the 1990s, disinvestment was overseen by the finance ministry. In December 1999, a Department of Disinvestment was created that morphed into a Ministry of Disinvestment in September 2001 under Arun Shourie, under whom the maximum number of disinvestments took place along with - inevitably perhaps - the maximum amount of controversy. Still, targets were only achieved in one year.

After 2004, the disinvestment function reverted to its departmental status under the finance ministry, until a luminously-labelled new department and a fledgling institution robbed it of its essential function this year.

Institutional tinkering aside, the underwhelming performance of the disinvestment programme was not for want of advice. The first disinvestment experience - in which minority stakes in PSUs, which were unlisted then, were auctioned in "bundles" of "good", "very good" and "average" based on an opaque Net Asset Value valuation - exceeded the modest targets thanks mainly to the government-owned banks and financial institutions that obligingly bought them, a classic case of transferring taxpayer money from one hand to another. In 1992-93, the government decided to jettison this bundling methodology - but only after bidders objected - in favour of auctioning shares of individual PSUs, but with little improvement in receipts.

In 1993, a committee under C Rangarajan recommended a far bolder programme - 100 per cent divestment in all government holdings and smaller percentages for sectors explicitly reserved for the public sector and specific industries. The report was ignored. Then in 1996 came a Disinvestment Commission under G V Ramakrishna and later R H Patil, which submitted 24 reports covering 95 cases between them before it was wound up by the United Progressive Alliance in 2004. Its recommendations were partially implemented.

The DIPAM-NITI Aayog set-up reverts to the multiple-objective policy that contributed to the weaknesses of the disinvestment programme and added to the problems of PSUs, who suffer all the tribulations of a capricious and impecunious owner. Because the international funding agencies initially disallowed disinvestment proceeds from being used to bridge the fiscal deficit, Narasimha Rao's government set out eight objectives for the disinvestment programme, essentially motherhood statements that included modernisation and "upgradation" - that uniquely Indian word - of PSUs and assurances to the Left that the family silver was not being hocked.

Proceeds were supposed to go to a National Renewal Fund that would finance voluntary retirement and re-training schemes for PSUs, a part-fiction that was maintained until the multilateral lenders finally agreed to let receipts be used to bridge the fiscal deficit.

Separately, from 1997 onwards, the PSUs found themselves conferred a graded jewel status - Navaratna, Mini-Ratna and, most recently, Maharatna - that reflected the amount of managerial autonomy they could enjoy. How far this worked in practice is doubtful, since many of the most autonomous companies, which were listed on the markets and had public shareholdings by now, operated in industries in which market prices (and sometimes distribution) are regulated. For example, in 2014, UK-based The Children Investment Fund sold its two per cent stake in Coal India after accusing the government of mismanagement and political interference.

DIPAM bears the hallmarks of this regime's governing instincts, by centralising the government's role as promoter and chief interferer in PSU functioning, replacing the meddling by individual ministries. Like the year-old NITI Aayog it will be a test case of this government's success in institution-building.