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| K S Chalapati Rao: Listing PSUs does not mean market discipline | | Product market discipline is a much more potent disciplining mechanism than listing |
| K S Chalapati Rao / Jan 29, 2012, 00:23 IST |
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A number of announcements and reports having a bearing upon listed public sector undertakings (PSUs) have come out this month. These range from the Institutional Placement Programme, which allows companies to comply with the minimum public shareholding norm without making a public offer and thereby side-stepping the requirement to reserve a certain portion of the issue for retail investors; buyback of shares; encouraging cross-holdings; seeking larger dividends from PSUs by the government; and plans to persuade 50-odd PSUs to list on the stock exchanges. Coming in the wake of the government’s failure to meet the disinvestment target of Rs 40,000 crore during 2011-12, these attempts acquire a meaning quite different from what they are normally associated with.
While reiterating the objective of “further market discipline”, the present disinvestment policy prominently starts off by saying that “citizens have every right” to own part of the shares of PSUs; since PSUs are the wealth of the nation, the wealth should rest in the hands of the people. Raising budgetary resources does figure as an objective but quite lower down the order.
Listing, however, implies that PSU share ownership is open to, besides Indian individual investors, a variety of other domestic and foreign investors. In fact, individual Indian investors now own just about 14 per cent of the non-promoter market capitalisation of listed PSUs. FIIs hold almost twice as much. Now, even qualified foreign individuals can invest directly in PSUs. Obviously, the emphasis on citizens’ ownership is only a pretext to make disinvestment more palatable, and underplay the objective of raising resources for the government. Stock exchange listing is primarily to raise resources necessary to further an enterprise’s business, and to provide liquidity to investors. However, what the disinvestment process has done is mainly to enable the government to encash its shareholding. Data available at www.bsepsu.com suggest that, out of the Rs 1,11,645 crore raised since 1991-92 from the market by Central PSUs, public sector banks and financial institutions (FIs), as much as 60 per cent went to the government — and only 40 per cent to the listed PSUs, by way of fresh capital.
Leaving out banks and FIs too — subject to capital adequacy norms — means that nearly three-fourths of the Rs 92,792 crore raised went into the government's kitty, and only about one-fourth to PSUs. In fact, all the money raised by the public sector banks was in the form of fresh capital. Out of the total funds raised through divestment of government shares in Central PSUs, issues since 2009 accounted for as much as two-thirds. The very fact that the Department of Disinvestment is tagged to the Ministry of Finance and annual disinvestment targets are set also shows that the primary objective is raising funds rather than financing PSUs.
In the earlier phase the funds mobilised by the government through disinvestment and credited to the National Renewal Fund (NRF) set up for the specific purpose of assisting and retraining the employees affected by industrial restructuring mainly went into supporting VRS. The National Investment Fund (NIF), whose funds were not intended to be depleted, as only the income from the fund was to be utilised — 75 per cent to finance social sector schemes and 25 per cent to strengthen profitable and revivable Central PSUs — succeeded the NRF in 2005. The NIF, however, never really took off, thanks to the “one-time” three-year exemption made in 2009 — which paved the way for spending the corpus itself on employment schemes and on infrastructure. The experience so far points to the fact that disinvestment has been used to serve short-term and ad hoc uses. The government did not hesitate to frame/modify the rules of the game to suit its requirement.
The manner of the proposed dilution does not increase citizen ownership and if it is done through public financial institutions and cross-holdings by government companies, it would only mean locking up of PSU funds. Squeezing more dividends, forcing buybacks and divestment through public financial institutions and cross-holdings are not in the spirit of promoting ‘further market discipline’. It will be even worse if such proposals are defended by drawing parallels with private promoters. As it is, listed PSUs shell out more of their profits as corporate tax and dividends compared to Indian private sector companies. In a way, the government’s behaviour resembles that of listed foreign companies, which too extract larger dividends to fund their parents’ global operations.
Listing alone cannot ensure proper PSU functioning. Appointing independent directors, setting up of audit committees and better disclosures can be done even without listing. The government has to reform itself through the timely filling of board-level positions, including that of independent directors, with persons of ability and integrity; refraining from treating PSUs as handmaidens of the respective administrative ministries; and improving coordination by minimising the diffusion of responsibility spread over various ministries. Until then, listing only amounts to treating PSUs as ATMs. Listing did not prompt Sail to invest more in R&D, a fact underlined even by the Public Undertakings Committee. And the post of Director (Technical) has been lying vacant since September 2010!
Today, almost all PSUs face competition; except for atomic energy and railway transport, sectors are open for private-sector participation. Product market discipline is a much more potent disciplining mechanism than listing — especially when the objective of listing is to raise resources for the government and not for PSUs’ own operations. Listing, in fact, puts additional burden on management. Can we, as citizens and the real owners of PSUs, expect more honest and responsible treatment of PSUs by the government?
The writer is at the Institute for Studies in Industrial Development, New Delhi
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