With the Left out of the power equation, it was assumed that it would be only a matter of time before the government revived its disinvestment plans. While the government has announced an ambitious plan to sell off stakes in various public sector undertakings (PSUs), not all political parties in the ruling coalition seem to be willing to give up the political patronage and rents that come with control of PSUs. So, the government must be congratulated for biting the bullet. The plan to list PSUs is a welcome move given how listing forces firms to become more transparent in their functioning, apart from what it does to managements which are then judged by the performance of their stocks in the market. With listing comes the inevitable need to have a certain proportion of independent directors, and while, it is true, Clause 49 is not yet mandatory as far as PSUs are concerned, the government would do well to make this so at the earliest. Sceptics will argue that mere listing will not ensure free hand for PSU managements. As an example, they cite oil PSU BPCL where, despite the government’s low shareholding, the policy on asking PSUs to share the huge oil subsidy was not discontinued. This is a valid criticism, but at least the issue of the subsidies being unfair to BPCL’s minority shareholders came up — when’s the last time you heard someone saying the unlisted Air India flying a new uneconomic route was a bad use of taxpayers’ money?
But if the government is not to reduce the concept of disinvestment to just a revenue-filling exercise, it needs to rethink its strategy to make PSUs more efficient. There is still a case for wholesale privatisation of non-strategic PSUs. While it is true that some PSUs have turned around and are doing well, many others still underperform. A good example of this is the state-owned BSNL which, till a few years ago, was matching market leader Bharti Airtel quite well when it came to new subscriber additions. It then floated a tender for new mobile phone equipment, only to see it getting delayed as the communications minister thought the price quoted in an international bid could be further lowered. After the delays, the minister decided to reduce the size of the original bid and said the company would float a new tender. This was done several months later and is now stuck in the courts as one of the bidders that was disqualified on technical grounds went to court. Needless to say, BSNL’s position in the marketplace has slipped considerably. Since unsuccessful bidders don’t get to take private firms to court, it is obvious the government needs to revisit the issue. Not asking PSUs to issue tenders is a bad idea, but perhaps this needs to be done only for contracts above a certain value — the value being fixed as a proportion of sales or some such variable. Another tack should be to approach the courts to reinterpret the rulings that state PSUs are an instrument of state — it is under this that losing/disqualified bidders are able to take PSUs to court. This will be time-consuming but, if successful, will be a very important victory for PSUs, especially in managing labour relations.
