A truly public solution

Recently, when the Left joined the co-ordination committee with the UPA after a four month boycott, they had taken what seems to be a peace-making stance on the prickly issue of PSU divestment. A little before the meet, CPI (M) general secretary Prakash Karat said that sales of shares in non-navratna PSUs can be discussed.

Karat was responding to a statement by Finance Minister P Chidambaram that both public and private sector companies should offload large stakes to the public so that markets can judge the corporate sector’s performance. Chidambaram, who had just returned from China, referred to the communist nation’s plan to raise $270 billion by making state-held stock publicly traded.

Therein lies a key to solving the disinvestment deadlock. The UPA’s Common Minimum Programme says that privatization will be considered on a transparent and consultative case-by-case basis. It also promises to retain the public sector ‘‘navaratnas’’ while enabling them to raise funds from the market. Tune out the noise and the Left’s stance is simply ‘‘don’t sell stakes in navratnas just to dilute government holdings.’’

A clear win-win option is listing unlisted profitable public sector giants by making public offers in small tranches. Like Chidambaram said, this will energise the stockmarket and be good for measuring these companies’ worth. And this could have lucrative ramifications: When the government first sold a stake in Maruti, it gave up 27 per cent for Rs 990 crore. Now, with the market valuing Maruti much higher, it is likely to get over Rs 1,000 crore for an 8 per cent stake.

Only 28 of the 240-odd central PSUs are listed. NTPC, the last PSU to get listed, raised over Rs 5,000 crore for a mere 10 per cent stake sale. For the year-ending March 2004, around 129 PSUs were not making losses – 30 of those made profits of over Rs 200 crore.

The absence of the latest numbers is yet another reason unlisted PSUs should be in the market. As things stand, 137 of the 183 central unlisted PSUs (in a CMIE database) have not yet declared their results for the financial year ending March 31, 2005.

Once listed, the management in these companies will come under a lot of pressure to comply with several norms – they would have to hold board meets on time, be more transparent in operations. Benefits on the corporate governance front alone warrant listing these companies’ shares.

The Cabinet Committee on Economic Affairs has already an in-principle approval for listing unlisted PSUs with a net worth of more than Rs 200 crore. What is needed now is one single fiat from the government that every profitable PSU that can get listed must do so in six months, else show cause why it can’t. The value that can be unlocked could be phenomenal—the 126-odd profitable PSUs together generated Rs 27,199 crore in profits in 2003-04.

Reducing the budgetary support to dozens of ailing PSUs that have been bleeding with losses of thousands of crore rupees every year could be an even easier decision. After all, Karat recently asked the Centre to adopt the West Bengal model for public sector reforms. Though Karat didn’t elaborate, Prime Minister Manmohan Singh and P Chidambaram would be happy.

The West Bengal government is using what it calls the ‘joint sector route’ for reviving sick PSUs, under which the state can divest up to 74 per cent of its stake in a PSU to a private player through a strategic sale. The key factor: the state should be convinced that throwing any amount of public money into the company will be futile.

Looks like the DoD may finally have some work related to, well, disinvestment.