E A S Sarma
In contrast, without rhyme or reason, the present NDA government at the Centre introduced in December, 2021 sweeping changes in its policy, that aim at privatising the Central Public Sector Enterprises (CPSEs) and monetising their “non-core” assets; the entire exercise to be completed at a breakneck speed ,within the next couple of years, cutting across both the strategic and the non-strategic sectors, literally putting the national wealth on a distress sale. Making a mockery of the autonomy of the CPSEs, the new policy has empowered the respective Ministries to remove summarily the CPSE heads, who fail to fall in line with the tight time schedules, replace them with the Ministry’s own officials, to complete the disinvestment exercise as scheduled. The new policy subserves neither the national interest nor the public good.
The Centre’s decision on privatisation of the CPSEs was unilateral, as it neither cared to consult the States who have a stake in them, as it was they who had acquired the lands for the CPSEs when they were set up, nor did the Centre seek the considered views of the Parliament that played a pivotal role when each CPSE was initially set up.
The Centre has justified the decision on three grounds. First, privatisation would bring additional fiscal resources for the Centre, which in turn could be used to fund its social sector schemes. Second, privatisation would help bring additional capital investments for the undertaking to be able to enlarge its capacity. Third, privatisation would enhance the undertaking’s efficiency and profitability.
If the first few cases of disinvestment were to be considered any indicator, the prospects do not seem to be as rosy as expected. As a result of the deliberate decision of the Finance Ministry, other CPSEs competent to consolidate and run those on sale have been prohibited from bidding, leaving the field open for comparatively less experienced bidders to grab the valuable public assets for a song. Many among the bidders already stand heavily indebted to the PSU banks and are likely to saddle those banks with more liabilities, when they raise additional funds for buying the CPSEs.
The sale of the Central Electronics Ltd. (CEL) was an eye-opener on the casual manner in which the Finance Ministry is handling the disinvestment exercise. But for a public uproar, the sale of the CEL would have been finalised in a hurry in favour of a totally nondescript company for a paltry sum, the bidder having no capability whatsoever of running the CEL as a hard-core electronics company doing pioneering work in solar PV technology The sale of another CPSE, Pawan Hans, finalised by the Finance Ministry in an undue haste, had to be put on hold abruptly, when there was a similar uproar on the capability and background of the successful bidder.
The Finance Ministry issued a woefully undervalued LIC IPO in May, 2022, calling it a unique game-changer, ignoring the serious threat it posed to the interests of more than 280 million policy holders of the LIC and an equally serious threat it posed to the very character of the LIC as a social security provider and an important partner in funding the States’ social sector and infrastructure projects. The IPO has eventually turned out to be a damp squib, resulting in underselling it to the speculative stock-market investors at the cost of millions of disadvantaged policy holders.
The argument of the Finance Ministry that privatisation would bring additional resources is a fallacious one, as the disinvestment proceeds come from the same pool of savings in the economy from which the government also borrows but on much better terms. The difference is that the government, going via the disinvestment route, would not only undersell the CPSE in a buyers’ market but also lose control over the CPSE altogether. Instead of selling the valuable CPSEs in a distress, the government ought to have explored other means of raising funds for its social sector programmes, such as, pruning expenditure on unproductive, non-essential items of expenditure, levying redistributive taxes to reduce income inequalities and concentration of wealth as envisaged in the Directive principles and bridging the fiscal gap thus reduced by borrowing from the open market. The same reasoning is applicable to the government’s indiscriminate scheme of monetisation of CPSEs’ assets.
How profitable are the CPSEs?
Though profitability should not be the primary indicator of a CPSE’s performance, out of 366 CPSEs, 171 CPSEs generated Rs 1,45,530 Crores of net profits during 2019-20. Even after setting off the losses incurred by some CPSEs, CPSEs as a group generated Rs 1,23,857 Crores of net profits. Their contribution to the public exchequer during 2019-20 was Rs 3,76,425 Crores, their foreign exchange earnings were Rs 1,21,756 Crores and they paid dividends to the extent of Rs 75,830 Crores, the bulk of the same going to the government. During the same year, the CPSEs invested Rs 4037 Crores on R&D and several CPSEs such as RINL and BEML secured patents for innovative technology contributions. During 2019-20, the CPSEs had an employee strength of 14,73,810, out of whom 49.8% belonged to the SCs/STs/OBCs. 42.7% of the managerial positions in the CPSEs are held by employees belonging to the SCs/STs/OBCs.
What should be the basis for evaluating the CPSEs’ performance?
Against the above background, one should note that the performance of a CPSE needs to be evaluated primarily on the basis of its role as an instrumentality of the “welfare” State under the Constitution and, subject to it, in relation to the functional responsibilities stipulated for it, either by a specific legislation or by its Memorandum of Association registered under the Companies Act . The CPSE should no doubt be able to carry on its activities in a financially sustainable manner, either on its own or, if inevitable for valid reasons, with the help of State subsidies. Thus, profitability cannot and should not be viewed as the primary yardstick for measuring a CPSE’s performance.
Subsidies may become necessary when a CPSE undertakes an unremunerative activity for promoting the public welfare, as in the case of the PSU banks required to promote banking in the rural and the remote areas, covering the disadvantaged households, as the banks then would necessarily incur losses which need to be made good by the State.
Conclusion:
The government should take note of the fact that the CPSEs are here to stay for a long time to come. To privatise them in an undue haste would hurt the national interest, erode the idea of self-reliance and be detrimental to the public interest. If there are constraints that inhibit the CPSEs from discharging their responsibilities efficiently, instead of ignoring them, the government should identify and address then frontally, so as to permit the CPSEs to become constructive partners in nation building. Sooner the present government realises this, better it would be for the long-term well being of the people at large.
E A S Sarma, Former Secretary to Government of India
