DISINVESTMENT UNDER KILLING ECONOMIC CRISIS

There is nation-wide debate as regards to the government's compulsive helplessness to part her stakes in PSUs to sell them to private business houses to raise funds through disinvestment without losing control over the public owned enterprises. The media and the government in particular have not been able to enlighten well the nation on disinvestment. In fact the government has been spewing so much lies and false assurances so far and due to non-fulfilment of promises she made that it lost her credibility for raising funds through sale and disinvestment. Correctly speaking after assuming office for 2nd term the government is hell bent to sell outright or go for 100% strategic disinvestment of many PSUs. 

Some of the key disinvestments that were announced by the government in her 2nd term of office but couldn’t proceed due to market conditions are

General Insurance Corporation of India Ltd. and New India Assurance Company Ltd.

MSTC Ltd. through Initial Public Openings (IPO)

Strategic disinvestment of 100% government holding in Central Electronics Ltd.

Strategic disinvestment of Bridge and Roof Ltd.

North Eastern Electric Power Corporation Ltd. through IPO

Bharat Electronics Ltd. through 100% disinvestment

NBCC (India) Ltd. and HUDCO

Air India and five of its subsidiaries

Pawan Hans

Strategic divestment of 100% government holding in Bharat Pumps & Compressors Ltd.

A strategic sale by a government is one where the majority and management control is ceded to the buyer. A divestment could be stake sale to a buyer, via an initial public offering or a direct deal, but in which the government still retains majority and management control. This is not the case with the Modi government.

India is a mixed economy that seeks to compromise between capitalism and socialism. It means that both the socialistic sector (i.e, the public sector -- the PSUs like Air India, Coal India, BPCL, NRL, SCI, CONCOR, LIC, THDC, NEEPCO, NTPC etc) and the capitalistic sector (i.e, the private sector - Ambani, Adani, Tata, Birla etc ) exist side by side and comple­ment each other in mixed economy.

As now we are into a killing economic crisis, the Modi government has launched India’s biggest-ever asset sale, a $29 billion privatization drive to help jack up the economy.

The government undertakes disinvestment to reduce the fiscal burden on the exchequer.

Disinvestment is sale or liquidation of assets by the government, usually central and state public sector enterprises, projects as mentioned above or other fixed assets to raise money for meeting specific needs --  as in the present crisis situation in India to bridge the revenue shortfall from other regular sources.

In recent years, the government has been comfortably using the Exchange Traded Fund Indian (ETF) route to realise disinvestment money.

An Exchange Traded Fund (ETF) is a type of fund that can be called a basket of securities that trade on an exchange, just like shares/bonds/commodities/

foreign currencies etc are traded on Exchange.

Yes the uniqueness of ETFs is that it is a basket of different shares of different capital market products.

At present two ETFs -- CPSE ETF and Bharat 22 ETF

are doing a wonderful job for the government by procuring tremendous amount of money. 

CPSE ETF : As a part of the disinvestment programme, the government approved the setting up of Exchange Traded Fund (ETF) by including the shares of listed Central Public Sector Enterprises (CPSE). The CPSE ETF includes mainly energy and oil sector companies. There is no lock-in period for the CPSE ETF for investment and qualifies for 80C tax deduction.

The ETF or Exchange Traded Funds along with IPOs, Strategic Disinvestment, Buyout of Shares and Offer for Sale have helped the government to realise the gigantic disinvestment targets for 2017-18 (Rs 80000 cores) and 2018-19 (Rs 100000 crores).

Bharat 22 ETF : is an Exchange Traded Fund (ETF) having pooled shares of different listed companies. It is basically an exchange traded (ETF) fund that can be purchased and sold like shares in the stock market.

Bharat 22 contains 22 stocks including those of central public sector enterprises, PSU banks and holdings under the Specified Undertaking of Unit Trust of India. These shares belong to the companies of six different sectors.

The relevance of Bharat 22 is that it is a useful tool to mobilise funds by selling public sector companies’ shares in an easy way. 

Since, its launch in 2017, the Bharat 22 has mobilised nearly Rs 39000 crores in three rounds till October 2019.

So what needs to be understood is that the government usually avoids selling majority shares or stake so that ownership and control of the organisation rest with the government. The objection raised by the nation against 100% sale or disinvestment holds enough justification for doubting the intention of the government which has been for long favouring the big business houses.

This FY 1920-21 the government had originally budgeted for an ambitious disinvestment target of Rs 2.1 lakh crore, with the sale of stake in companies such as Air India and LIC on the agenda. However, without proper preparation and planning, achieving this target in the current economic environment will be difficult.

Achieving the target for disinvestment set by the government has been not very encouraging. In fact, proceeds from disinvestment have remained almost stagnant at 0.3% of GDP over the past five years. Gross tax collection has slowed down and contracted to 22.5% till 15th Sept, '20.

Although PSUs were set up for the purpose of providing employment and at the same time to generate revenue surplu yet they could not stand to expectations because of bad management. Hence steps for disinvestment had to be taken. Experts are of the opinion that disinvestment is unavoidable in a mixed economy for the success of maintaining balance in second generation reforms. 

We have seen every socialist country adopt industrialization, rather efficient industrialization, for appropriate growth, be it China or Russia.

At the micro level, the inclusion of stakeholder than change in ownership through disinvestment will pump life in the organization to increase domestic competition, hence efficiency; and encourage public participation in domestic stock market.

Disinvestment with majority stake of the government will be extremely positive for the Indian equity markets and the economy. It will draw lot of foreign and domestic money into the markets. It will allow PSU to raise capital to fund their expansion plans and thereby create job opportunities and improve resource allocation in the economy. Hence outright sale of PSUs is uncalled for in a mixed economy. A balance has to be maintained between social responsibility and business. 

Business is essential in its place to risk and make profit. So is government is essential in its place to make use of profit for discharging her social responsibilities.