Madan Sabnavis
The issue of disinvestment in India has been one which always raises questions as well as pessimism. The question raised is normally related to whether or not the target can be achieved, which is a concern every year.
The targets set in the Union Budget tend to be high and given that the revenue story on other fronts does not work out, there has been a tendency for the focus to shift to disinvestment. The target for this year is Rs 1.05 lakh crore.
The other is, while we have managed to meet the targets in the past couple of years, which makes the government keep looking at higher targets, the quality of disinvestment tends to be quite different from the ethos behind this idea. This creates a lacing of pessimism whenever the targets are attained as it does appear that it is more about money than anything else.
Disinvestment, it may be recalled, was initially associated with privatisation, but drew considerable resistance internally as the thought of a PSU (public sector undertaking) becoming a private company where the rules of engagement are different was not acceptable to the workers as well as the public. It was interpreted by critics to be a move to sell public wealth to private parties. Hence, the compromise was that it was called disinvestment and generally, the government continued to own 51 percent of the stake. This was a win-win situation as the government controlled the company, but also got in the money by selling the stake.
Further for a period, the targets were not fixed between 2004-05 and 2009-10. But it has now become an integral part of the Budget subsequently, which makes it a valuable source of finance. Besides, it brings down the fiscal deficit by as much as 0.5 percent of GDP (gross domestic product).
The pessimism relating to disinvestment has its genesis in the way in which stake sales have been conducted. Most of the time, it is a case of one public sector entity buying another one which is truly an internal transfer. Rarely do we have an IPO (initial public offer) of high magnitude where the public gets to buy the majority shares or a direct strategic sale to a private company. VSNL was the first to go for a public offer in FY2000. The ETF (exchange-traded fund) route chosen in the past couple of years has been different and effective, but for the big ticket sales, the government has preferred to do the stake sale within its own agencies.
While this has been a safe way of disinvestment, there is a genuine problem in the way in which such stake sales take place. The challenge has always been at what time and price to sell the stake. Here, there is a genuine issue in which the government machinery works. That is, no one wants to take responsibility for a sale which takes place at a specific price because if the price increases subsequently, there can be problems in Parliament for selling the stake cheap. The possibility of various investigative agencies beginning proceedings can be a worry. Hence, it is convenient and safe to sell the same to another PSU, which avoids all controversy.
Now, BPCL will be a very good test on whether or not these past practices will be kept aside. It will be a strategic sale which means that it will be to a single party. Second, it would mean that the government will no longer be the owner, making the employees lose the comfort of being a PSU. Third, the amount which can be received will be a fair valuation because so far the price did not matter. More importantly, it will set the template for such disinvestments and test the real interest by private players. In case the process goes through smoothly and the new management works well, it will be a fair measure of success.
The signal being given by the government is quite clear. Disinvestment will be the order of the day for PSUs and they will have to gear up for the occasion. There will be some takeovers coming in; and both profit and non-profit making companies could be involved depending on the sector. Also, PSBs (public sector banks) will not be off the radar. So far, the government has spoken of inter-PSB mergers. The day may not be far off when they would be offered in the market and could be attractive for private players, too.
Madan Sabnavis is Chief Economist, CARE Ratings. Views are personal.
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