Strategic sell-off is de rigueur

The NDA government has succeeded in raising an amount of Rs 29,000 crore per year from the disinvestment of shares of central public sector undertakings (CPSUs) in the last three years in comparison to Rs 19,000 crore per year raised during the UPA government. This success is a double-edged sword, though. While it provides more money to the government for meeting its present expenditures, it also means that the government has sold more of the family silver bequeathed by the past governments.

Basic problem of the CPSUs is that they are not accountable. Our politicians are accountable to the voters every five years. They are thrown out of power if they do not deliver. Private businessmen are accountable to the share market. The price of the shares of their company crashes if they do not make profits. But the managers of the CPSUs are not accountable in a credible manner to anyone.

The Comptroller and Auditor General (CAG) audits their accounts. Secretaries to the government review their performance. But these are all part of the same bureaucracy that runs the CPSUs. Theoretically, the CPSUs are accountable to the people through the Ministers. The officers of Oil India Limited, for example, are accountable to the Minister of Petroleum who, in turn, is accountable to the people.

This accountability of the CPSUs to the Ministers is in my opinion unreal because the accountability of the Minister of Petroleum to his constituents is multi facet. A corrupt CPSU management and a corrupt Minister can yet win an election on unrelated issues such as farmers’ loan waiver.

The accountability of the CPSUs to the Minister is unreal just as the Minister’s accountability to the cabinet is unreal while his accountability to his constituency is real. The CPSU executives, officials of the Comptroller and Auditor General, and the Secretaries to the government who hold the effective power on behalf of the Ministers are all part of the same government machinery.

This absence of regulation leads to misuse of authority by CPSU executives and to losses. This basic problem is not solved by disinvesting Rs 29,000 crore worth shares of the CPSUs every year while keeping the control with the government bureaucracy.

There is a need to fundamentally re-examine the concept of the CPSUs. Mokshagundam Visvesvaraya, the Dewan of Mysore, said that the role of the government was not to run industries. That was the private sector's job. However, this did not mean leaving the task to them alone. The State had an active role in supporting the private sector.

The starting of new industries called for entrepreneurship and adventure. The private sector suffered from the fear that capital that was invested might be lost. Therefore, he said that the government must itself start new industries in emerging areas and hand them over to private hands when successful.

This is called “strategic disinvestment.” Let us say the government holds 100 per cent shares in a CPSU. The sale of 49 per cent shares to the public leads to the retention of 51 per cent shares with the government and, therefore, the control of the CPSU remains with the bureaucracy. Such “disinvestment” provides more power to the bureaucracy.

They retain control of the CPSU and also get more monies from the sale of minority shares to spend. On the other hand, the sale of 51 per cent shares to the public and retention of 49 per cent shares with the government would transfer the control of the CPSU to the private buyer and transform the company from an inefficient CPSU into an efficient private company. Thus, Visvesvaraya argued for strategic disinvestment.

The government control of the CPSUs outlives its purpose as soon as the units become profitable. The need is to privatise the CPSUs in areas where they are successful and use the proceeds to establish new CPSUs in areas that require intervention. This will liberate the CPSUs from the inefficiency and corruption inherent in government control and also provide the much-needed money to invest in new areas.

Indian space and defense scientists have developed considerable expertise in satellite delivery, imagery and communications. Agencies like Indian Space Research Organisation lack the commercial bent of mind to sell these services to buyers across the world. A CPSU must be started to sell these services.

We have much scientific expertise in genetic and biotechnological research. But research in these areas is risky. One has to make a large number of experiments before some are successful. The investment required is very large. A CPSU should be established to develop and commercialize these technologies. Let us set up a Monsanto in the public sector.

A new generation of internet is in the offing. The present day internet was developed with the assistance provided by the United States government. The Government of India should take the lead in this work. We can develop the new internet at a fraction of the cost of the United States. We should establish and Internet Development Corporation.

Most developing countries are having difficulty in understanding the rules of the WTO and presenting their cases. There is a need to establish a WTO Support Services Corporation to provide these services to other developing countries. This company should have a legal wing to provide assistance in pleading their cases before the WTO dispute settlement boards. Such a corporation would give India much influence in molding the opinion of the developing countries.

India has an immense potential in exports of labour-intensive services like health and education. But we are not able to sell these services. The tuition fee alone for a two-year master’s degree at London School of Economics is about Rs 25 lacs. We can provide the same education in India at tenth of the price. A CPSU must be established to sell these services to the world.

The CPSU should pick up the students in their home country, bring them to India, educate them, get internationally acceptable certification and place them. The same holds for health services. There is a need to set up an international news channel on the lines of BBC and Russia Today so that we can spread our perspective across the world.

The increased receipts from disinvestment are not a happy circumstance as they stand today. The basic problem of inefficiency, corruption and political interference in the CPSUs is not sorted out. Secondly, the proceeds are for providing more money to the bureaucracy instead of making investment in new areas. (Author was formerly Professor of Economics at IIM, Bengaluru)

By Dr Bharat Jhunjhunwala