Going by newspaper reports such as those in The Times of India, strategic sales may just be back. After the Vajpayee government’s successful privatisation of PSUs like Maruti, VSNL, Balco and HZL, the UPA went back to the lazy ‘disinvestment’ of the past and, despite the signals it gave on strategic sales, NDA-II seemed to be quite happy following the UPA’s lead with, in many cases, LIC stepping up to buy PSU shares when there were no other buyers in the disinvestment process.
NITI Aayog has recommended, according to ToI, that 26 loss-making PSUs be wound up immediately and a strategic sale be made in some like the Cement Corporation of India—it has also suggested, that after they are revived, even those like Air India be sold to a strategic buyer. While the report is exciting since it is believed NITI Aayog’s recommendations are based on what the prime minister wants, this was also said about the Shanta Kumar report on restructuring of FCI—none of its far-reaching recommendations have, however, been implemented so far.
Pushing for strategic sales after a unit is revived sounds sensible since the government can get a higher value but is actually a bad idea since it is difficult to revive PSUs—if it is OK to sell Air India later, why not do it now while promising up-front cash to bidders or by taking over some of AI’s excess staff as was done when the Delhi and Mumbai airports were privatised? Similarly, would anyone want to take over loss-making hotels, even if given on long leases as NITI Aayog has suggested, unless the staff can be retrenched and major modifications are allowed in the hotel buildings? More important, unless drastic surgery is done on various PSUs, they can never be turned around anyway.
A BSNL with wages eating up 45% of revenues can never, for instance, be profitable without a big VRS; that applies even more to MTNL which has an even higher wage-share. Indeed, with 11 of the 34 listed PSU having an interest cover of less than 1—67 of the 124 unlisted central PSUs have this dubious distinction, according to the latest CAG report—the government has to do a big rethink on its PSU strategy; these units clearly can never be revived, so the solution has to be around how much cash has to be given up-front to potential buyers. The point, as NITI Aayog’s report must have brought out, is that business-as-usual is simply not a possibility any more as the government is too broke to finance it. According to the CAG report, 135 PSUs made losses during FY15, and these rose to R30,341 crore from R22,783 crore in FY14.
