Moneycontrol Pro Panorama | Asset monetisation still remains a tricky affair

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How can the government improve returns from the asset monetisation programme?

The mandarins at the Department of Public Enterprises have hit upon a solution: ask public sector enterprises to increase their market capitalisation 10 percent every year. This will be part of their performance evaluation, reports the Economic Times.

Now, in the private sector, a CEO’s pay also depends on how well their company’s share performs. So, why not for a public sector company?

The difference lies in the freedom for private sector CEOs to follow their own path and vision. The goal of a private company is to make a profit. Public sector companies have multiple goals — at times, it feels that profit making is incidental for such enterprises.

In any case, market capitalisation will automatically improve if there is less interference in such companies (like for example, being able to independently set prices) and if they are able to increase their earnings by becoming more productive and efficient.

Rising market capitalisation is also no guarantee of improving returns from asset monetisation. This year has seen a runaway market rally and a flood of money pumped into initial public offers, but there has been no rush to take advantage of high stock prices and privatise companies.

The failure to privatise is also a reiteration of how some things remain the same — how politics trumps good economics. We have seen this in the repeal of the farm laws and now the government scrapping key clauses in the draft bill to amend the Electricity Act. For more on this, read here.

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Technical picks: Axis Bank, Cipla, KPR Mill, and State Bank of India  (These are published every trading day before markets open)

Ravi Krishnan
Moneycontrol Pro