PSU disinvestment, at the last hurdle

The chief executives of the misnamed navratnas (there are 11 of these PSUs not nine) and the Standing Committee on Public Enterprises (SCOPE) have endorsed divestment of blue chip PSU’s through a trust route which promises more autonomy. The two-stage divestment through the NST, as suggested by Ramakrishna promises to give the government Rs 4000 crore immediately and yet allow institutional buyers who pick up the shares initially at a discount of 20 per cent to market, to gain through price appreciation by a stage-two sale which will again have to be shared with the government. (The promise of more autonomy would immediately lead to better valuation of these shares by the capital market.) Since the Trust route offers a real possibility of price appreciation to institutional buyers instead of simply arm-twisting them to pick upshares and balance the government’s books, they seem seriously interested. So much so, that while the government is debating whether UTI should be asked to participate in the process, UTI chairman P.S.Subramanyam has been making quiet suggestions that UTI’s trust structure offers a ready vehicle for disinvestment.

He argues, that UTI already has in place an independent board of directors, whose composition can, at best, be modified a little to bring it in line with that conceived for the Trust.

Unfortunately, for Subramanyam, the timing is all wrong. With UTI in need of a government bail-out, routing divestment through it will send all the wrong market signals. Moreover, UTI may have an independent board structure, but for the last six years at least, its chairmen have run the organisation like an extension of the finance ministry.

Do these developments mean that divestment is finally set to take off? It’s not so easy. Though the group of ministers, by and large, endorsed the divestment programme, thebureaucracy is another matter. The number who support divestment can be counted on the fingers of one hand. The rest are actively working against the process.

In fact, with a BJP government in place, the vested interest of the political leadership is far less entrenched than that of the bureaucracy. Unlike Congress politicians who have had a 50 year track record of bleeding PSU’s, the BJP and its coalition partners are novices — they are also under pressure to improve the economy, or their clout vanishes along with their government. But not so the bureaucrats. Irrespective of the colour of the ruling party, the bureaucracy remains in control and adamantly unwilling to relinquish control over PSU milch cows.

It is common knowledge that PSU’s are expected to provide kickbacks on contracts, telephones, cars, employment opportunities and even unmentionable services to netas and babus of their ruling ministries. Indecision, red-tape, lack of policy and constant interference have reduced Air India to anational shame and the UTI to near bankruptcy. The loss making, overstaffed SAIL is another example. These are not companies which have been on artificial respiration for decades, but were killed post-liberalisation, because they were not allowed to adapt to the changing business environment. Leave aside operational autonomy, the government has proved itself incapable of even making top level appointments at PSU banks and corporations even while they have been sinking into the red.

Even UTI’s problems could be traced to the short tenure of its Chairmen. Bank of India remains headless even as it sinks rapidly into the red. The abrupt resignation of its last chairman, M.G.Bhide who was openly acknowledged as efficient, remains a mystery. A determined prime minister, operating with a core group of dedicated people can still break through the gridlock of bureaucratic resistance.

But it needs a good deal of resolution, savvy and political will. The question is, do prime minister Vajpayee and Yashwant Sinha,have what it takes to overcome the last hurdles?