Everything in life comes with a “sell by” date. This is a lesson no Indian finance minister has ever managed to learn. The result is a waste of billions of dollars over the years, something a country like ours can ill afford. The government suffers from a strange belief that it should cling on to what it considers the family silver, till it realises that the asset has gone bad and then rush to offer it for sale, little realising that private enterprises are not exactly suckers waiting to buy lemons from the government stable. The lack of enthusiasm from bidders for Air India only highlights this malaise.
The Niti Aayog has recently put out another list of PSUs which it wants the government to sell, wholly or partially. It includes the Ashok Hotel in Delhi, marquee names like BHEL and the fallen star, MTNL. The Niti Aayog’s intentions are good, but the government will simply sit on this list and watch more value get eroded, almost as if it derives a perverse pleasure in watching things go to waste.
Take the case of MTNL. In its heyday, it was this telecom giant lording over a landline monopoly, till the sector was thrown open to private competition. The inevitable followed; MTNL withered away to nothing. It had a market value of Rs 13,000 crore in 2008, which is when it should have been sold, that has now shrunk to 1,000 crore. And now the government wants to sell it. Maybe there will be takers for its towers and the land it owns, else the company is a dud.
The other big name on the list is BHEL, another classic case of missed opportunity. Back in 2011, its market value was Rs 82,000 crore, now down to only Rs 28,000 crore. This is no Navratna. Which jewel loses two thirds of its value in seven years? In the same time, peers like Larsen and Toubro and Thermax have more than doubled in value.
Such examples abound in practically every sector that the government is present in. In power, NTPC — the third most valuable listed PSU, has lost 40 per cent of its value in the last decade. In shipping, SCI is down 70 per cent in the last 10 years. In finance, IFCI which the government has made half-hearted attempts to divest in the past, has seen its market capitalisation shrink from Rs 18,000 crore in 2007 to only Rs 3,000 crore today. In the service sector — areas like banking, aviation or hotels — the wealth destruction is even more alarming. Yet, the government clings on, in the futile hope that somehow these dysfunctional PSUs will resurrect themselves and offer a better exit opportunity. When it is forced into a corner by a poor fiscal deficit situation, it resorts to eyewashes like cross-ownership of these very PSUs — one entity buying the government’s stake in another, under the garb of creating giant global corporations. It is almost laughable.
The government is in denial about the simple truth that it cannot run businesses efficiently. Unless it is a government-protected monopoly, no public sector enterprise can compete effectively against private competition; that is the blunt reality. And even in these quasi monopolies, the government often steps in to destroy value by putting its own political objectives ahead of prudent corporate policy. Our oil companies, such as Indian Oil Corporation or ONGC, are classic cases in point.
In doing all this, the government not only shoots itself in the foot but also does a huge disservice to minority shareholders of these public sector companies. This is best demonstrated by turning the lens around to the few stray cases of strategic disinvestment it has managed in the past, like Maruti. In 2007, the government exited Maruti by selling its residual 10 per cent stake to Suzuki at Rs 797 per share. After its exit, the stock rose 11 times in subsequent years to touch Rs 8,500. An exemplary case of wealth creation for minority shareholders, which would never have happened had the company not been sold to Suzuki.
In the past, governments supported by Left parties have found it difficult to push through strategic sales in the face of opposition from labour unions. But for the last four years, we have a majority government in place with a supposedly strong leader whose core mantra is development, yet all we have seen is more pussyfooting with regard to PSUs. And as far as PSU banks are concerned, the less said the better. The silliest argument one hears from ministers is that many PSU companies are “strategic” in nature, therefore should remain in the government’s fold. This is, of course, total bunkum. Other than a few specific defence related products, nothing is strategic. Given sufficient incentive to make profit, the private sector will swiftly move into every area that these PSUs squat in, rendering them redundant overnight. Perhaps it is this fear which keeps bureaucrats from pushing disinvestment. Control, and the perks of it, aren’t so easy to give up, after all.
The government’s expenditure in key areas of welfare such as health, education, agriculture and skill development is woefully below what it should be. In a country with greater accountability, governments would have been taken to task by voters for wasting such precious fungible resources that could have been utilised for development expenditure. But unfortunately, our electorate remains too mired in primitive considerations of caste and religion to spot these glaring inefficiencies.
But time is running out for the public sector. As technologies change and the world advances further into the digital era, these PSUs will become more and more obsolete and redundant. They have to be sold while they still hold some value in the eyes of the buyer. Else they will die, slowly and painfully. The government will be left only with their ashes.
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