A K Bhattacharya: Half empty or half full?

RAISINA HILL

Just a little more than half the disinvestment target since 1991 has been met, and two-thirds of this was really fake.

A little known fact about India's economic reforms is that the first official articulation of disinvestment of government equity in public sector undertakings (PSU) as a policy option came from Yashwant Sinha in his interim Budget speech presented in March 1991. However, actual disinvestment was kicked off by Manmohan Singh in the latter half of 1991-92. In the last 16 years, the government has mopped up Rs 51,609 crore as receipts from disinvestment.

This amount is only a little more than half of Rs 96,800 crore of disinvestment proceeds budgeted by various governments since 1991. It would have certainly been less than half if the United Progressive Alliance (UPA) government had set disinvestment targets in the last three years. That it did not set any target is a comment on its inability to convince its Left allies to move ahead on disinvestment, and that is another story, to which one can return later.

What's more interesting, as much as 65 per cent of the total proceeds or Rs 33,544 crore have come through the sale of minority shares in 42 PSUs. Of the disinvested units, only six could be later sold off to strategic investors. The bulk of these shares were sold through the auction route and the buyers were mainly state-owned financial institutions.

A small portion "" Rs 4,643 crore "" came to the government because of cross-purchases of shares among state-owned oil companies. This was a novel method. The government got that money, but there was no genuine disinvestment as the oil companies bought each others' shares.

Even before this sham took place, eyebrows had been raised over the nature of disinvestment. The International Monetary Fund (IMF) had pointed out that proceeds from the sale of minority shares to state-owned financial institutions could not be counted as revenue for calculating the fiscal deficit.

Later, the IMF had relaxed its stance and the government continued with the pretence of disinvestment without really ensuring that such changes in the ownership pattern made a difference to the running of these PSUs. Thus, the government sold its majority stakes in three state-owned oil companies to "" who else "" two PSU oil companies. In the process, the government's disinvestment proceeds increased by Rs 1,317 crore.

Yet another novel method was to declare special dividends by companies just before they were being sold off or disinvested. Add to this the small percentage of shares sold to the employees of some of these PSUs, and the government's so-called disinvestment proceeds under this head went up by Rs 4,005 crore.

The National Democratic Alliance (NDA) government of Atal Bihari Vajpayee attempted some real disinvestment by privatising 13 PSUs by selling majority stakes to private bidders. In addition, 18 hotels under India Tourism Development Corporation and two units of Hotel Corporation of India were sold off. There was one sale of a PSU "" IBP "" where the eventual buyer was a PSU. In the process, the government mopped up Rs 6,344 crore. An additional Rs 6,398 crore were mobilised through the sale of residual shareholding in the privatised units.

Two points need to be noted. One, even after 16 years of experimenting with disinvestment (and after creating a ministry for disinvestment and then downgrading it to a department under the finance ministry), a little less than a quarter of the total disinvestment proceeds have come through genuine privatisation and the amount estimated at Rs 12,742 crore looks really small.

Two, about two-thirds of the proceeds have come from what are actually fake disinvestment. True, these PSUs may now be listed on the stock exchanges, their managements are now accountable to the markets and, therefore, they are more responsible for their actions. But the intended purpose of the exercise has not been achieved. The same is true for PSU banks, many of which have offloaded their stocks up to 49 per cent to the public. But government control, because of its majority shareholding, remains.

Do we need such fake disinvestment? Do we need such disinvestment which cannot free the managements of PSUs from government control? We know by now that the government needs such disinvestment because it uses it to reduce fiscal deficit, or meet some other expenditure, even though they give the whole exercise a bad name and confirm the fears voiced by critics.

If you don't believe this, take a look at the UPA government's Cabinet decision last week, which proposed, among other things, the sale of Oil India Limited's 10 per cent equity to three oil state-owned oil companies, ostensibly to meet the costs of reviving ailing PSUs and compensating the oil companies for the losses they have incurred by not hiking petroleum product prices. Could economic policymaking be more muddle-headed?