Does investing in PSUs make sense?

GUEST COLUMN/ TORCH-LIGHT

Some PSUs are selling for a song even as bourses hum bull tunes.

A decade and a half after embarking on an ambitious liberalisation programme, the Indian economy is thriving and appears well poised to occupy an eminent position on the global stage.

The turnaround of the domestic economy from the verge of collapse at the turn of the 1990s to today's healthy position and the path it has traversed have been extraordinary.

Forces inimical to change and keen not to lose their political turf - cutting across party lines - have attempted to stymie the liberalisation process.

However, it has rolled on like a juggernaut, crushing under its weight those living in a time-warp and intending to keep the rest of the nation also there.

The latest salvo fired in the direction of the liberalisation juggernaut has been the opposition to the disinvestment of public sector units.

Mind you, this is not a recent development. It must be recalled that former disinvestment minister Arun Shourie had to fight tooth and nail not only with the members of the Opposition, but with his colleagues in the government to push the disinvestment process ahead.

Those engaged in the capital market may remember the abortive attempts made by the government to partially disinvest its stake in Shipping Corporation of India (SCI) and National Aluminium Company (Nalco).

In fact, in the case of the latter, merchant bankers were reportedly roughed up by union members of the company when they sought to proceed with their due diligence.

Given these circumstances, what Arun Shourie achieved was commendable, but in a classical Indian political twist, he has now been placed in the dock in connection with the disinvestment of a government-owned hotel in Mumbai.

The comi-tragic irony here is that while a perceivably clean and able administrator is being hounded, a tainted cabinet minister is brazenly throwing caution to the winds and manipulating events in his state, at the cost of the government's image.

Returning to the disinvestment debate, finance minister Palaniappan Chidambaram tried to sugar-coat the divestment bullet by taking it out of the budgetary equation and placing it on the 'proceeds for social good' pedestal. All hell broke loose after he bided his time and announced the partial disinvestment of the government's stake in state-run Bharat Heavy Electricals (Bhel).

Notwithstanding his reiteration that the government's majority holding would never be compromised, his Leftist coalition partners saw red. They threatened to hold nation-wide agitations against the proposed disinvestment.

It is co-incidental that in spite of cohabiting in a coalition at the Centre, Chidambaram's party and his Leftist coalition partners will clash headlong in elections in a couple of states within a year.

The Leftists place forth their argument against disinvestment by stating that there is no need to sell the 'family silver' to fund the socialist objectives of the government. They argue that India's tax to GDP ratio is relatively low.

Of course, they conveniently forget the fact that there is no semblance of social security in India where the tax paying public is left stranded at the end of their earning life.

It was clear which segment of his coalition partners Chidambaram was catering to when he mooted the draconian EET (exempt exempt tax) whereby hitherto holy cows like the public provident fund (PPF) would come under the taxman's hammer on withdrawal.

The next argument revolves around alternative avenues of taxing businessmen, professionals and the middle-class. If a high rate of income, service and other taxes - not to speak of the seemingly senseless fringe benefit tax (FBT) - is not enough, what more could be? The argument is self-defeating and will only strengthen the thriving parallel cash economy.

One area where the leftists have been making the right noises though has been on taxing the affluent agricultural class. Perhaps, they would do well if they focus their boundless energy there instead of expending it on street protests and strikes that drain national productivity and wealth.

So does all this mean that the disinvestment programme in India will be shelved? Not at all. Having taken a complete U-turn in the early 1990s and traversed past various road-blocks, this aberration will be looked at as nothing more than a hiccup. With the passage of time, parties with common economic ideologies will share the government platform and adhere to the basic tenet that the 'government has no business to be in business'.

For those who believe this will inevitably happen and are willing to wait, there can be no more compelling investment avenues than some PSUs which are selling for a song even as the bourses reverberate to bull-tunes.

(The author heads Lotus Knowlwealth, Mumbai, and can be contacted at ceolotus@hotmail.com .)