Devangshu Datta: A please-all solution

WORM'S EYE VIEW/ Why not turn the 106 loss-making PSUs into leasing companies?

My parents were academics. Like others of their ilk, they worked long, underpaid hours, risked death during the Naxalite era, did election duty when their numbers came up, corrected lakhs of exam papers and retired to live off their pensions and the few assets they had scrimped and saved to create.

Their tax payments and the payments of millions of individuals like them funded the public sector. As far as I'm concerned, they and people like them, the ones who have retired after paying a lifetime of taxes, are the moral owners of public sector undertakings (PSUs).

At retirement age, every tax-payer should be handed dividend-paying equity in the PSUs along with pensions, public provident fund (PPF) and so on. The amount of equity should vary with the sum of lifetime tax payments. The equity itself could be non-transferable or revert to the government after the owner's demise; it could be non-voting, and linked to the rupee-Euro/dollar or anything else in terms of structure.

There are only two essential elements. Such an instrument must meet the basic criteria of paying dividends from profits. And, it must be fungible in either the open market or offer a buyback at valuations linked to the NAV/book-value concept.

Fungibility would ensure that the market treated these "Dada-Dadi shares", for want of a more original name, as exotic preferential shares. The quants would have a field day, working out variations of the standard models to assign valuations to an instrument with an uncertain expiry date.

One could make rational arguments in favour of such a suggestion. It might prove a long-term inducement for individuals to pay taxes. In effect, it would also move India from a fixed-payment pension regime to a mixed pension regime that incorporated some of the better aspects of the Chilean model. It offers political leeway to reduce the spread between mandated provident fund rates and market rates.

The government gives up zilch in control, and the distribution of profits is equitable and rational. It's healthier for the economy in the long run, if it removes the massive implicit subsidy of a high mandated spread.

The political implications of a "Dada-Dadi share" would be large but not necessarily bad. It might sensitise politicians to the need for profitably operating PSUs if they service a constituency of elderly taxpayers depending on those profits. And, who knows, some Indian economist might have a shot at winning a Nobel by explaining the valuation metrics or possible macro-economic outcomes.

Anyway, it's too radical a suggestion for any government to follow. There is also no question about the further sale of stakes in profitable PSUs during the current government's term. Nor is there any question of shutting down loss-making PSUs. Both are hot potatoes that the current government will refuse to touch because of its leftward bias.

Whether a PSU is profitable or not is secondary from the ideological angle; shutting it down means the loss of jobs in the organised sector and selling it off could well mean the same. At the least, job security may be significantly reduced.

Well, there are ways to walk inside the bounds of the common minimum programme, keep the unions happy and still restructure loss-making PSUs, at the least. There are some 250-odd PSUs and, of these, 106 are outright bleeders. (Many of the 130 profit-making PSUs have returns far lower than the cost of capital but let's not quibble.)

Why not turn the 106 loss-makers into leasing companies? Most have vast amounts of badly-utilised physical assets. Lease those assets out on a reverse BOT (Buy-Own-Transfer) concession and put enough of the lease revenues in escrow (or T-Bills) to cover human resource (HR) costs. Assure employees that they will continue collecting salaries, pensions, and so on, while leaving them free to find other employment with the Sarkar's blessings (and continued financial support).

At current interest rates, this makes obvious sense in any loss-making PSU where the HR costs: physical assets ratio is lower than 7 per cent. Even in loss-makers where employee compensation consumes a higher percentage, it would staunch the bleeding. And what objection could organised labour possibly have?