IT IS DISINVESTMENT, NOT PRIVATISATION

The BJP-led NDA government is pursuing disinvestment not to vacate the public sector, but to increase its
efficiency
Although the moratorium that the United Progressive Alliance government had placed on strategic sales in 2009 has been
lifted, it is quite evident that Prime Minister Narendra Modi is not planning to emulate British Prime Minister Margaret
Thatcher. With the conviction that government has no business to be in business, she had led the United Kingdom, in the
1980s, to privatise 670 of its public sector companies.

If Thatcherite privatisation was about exiting business through a transfer of state assets and companies to private
ownership, the new disinvestment policy Mr. Modis cabinet approved in February is bound to increase government
control over public sector companies.

The intention of the policy is not to shrink the public sector but to rejig it so that assets, including land and cash balances,
of government companies can be hived off and used for investment in new projects. The renaming of the Department of
Disinvestment as the Department of Investment and Public Asset Management reflects the new thinking.
To increase efficiency
The BJP-led NDA government is pursuing disinvestment, NITI (National Institution for Transforming India) Aayog
member Bibek Debroy told The Hindu, not to vacate the public sector, but to increase its efficiency. If a government
company is profitable without subsidies while competing with private firms, then why should government exit, he argues.
According to him, the new disinvestment mantra is to reduce interference, allow public sector enterprises to function
along commercial principles by granting managerial independence in decision-making, such as in appointments.

He makes an important pedantic distinction between privatisation and disinvestment: While sales of stakes greater than
50 per cent, perhaps even 100 per cent, is privatisation, any tinkering here and there is disinvestment.

The government set a new record in tinkering with disinvestment in the last financial year, 2015-16, by raising
Rs.32,148.80 crore.

No government companies were sold to private sector owners. The government did not give up its control over a single
public sector company. It merely offloaded a few shares in a handful of companies, mainly through the stock market,
where many of the buyers picking up the divested shares were from the public sector public sector banks, the Life
Insurance Corporation of India or other government companies. The divested companies remain state-owned and
government control over them undiluted.

In fact, since 1991, over 90 per cent of disinvestment receipts, of over Rs.2 lakh crore, have come from such piecemeal
disinvestment.
All privatisations so far, except Modern Foods, happened during the tenure of Arun Shourie as Disinvestment Minister in
the Atal Bihari Vajpayees National Democratic Alliance government.
Bureaucracy unenthusiastic
Not all of these are controversy-free. In 2006, the Comptroller and Auditor General of India in more than one report
pointed to serious shortcomings in the sales processes. Two years ago, the Central Bureau of Investigation (CBI)
registered a case against, among others, former Disinvestment Secretary Pradip Baijal for the sale of the Indian Tourism
Development Corporations Laxmi Vilas Palace hotel in Udaipur.
Whatever the final outcome of the probe, the damage has been done. Bureaucrats have got cold feet over strategic sales. In
a corrective step, Mr. Modis new disinvestment policy provides for land to be valued at market price for inclusion in
sales. NITI Aayog is set to bring out fresh recommendations about loss-making units that can be sold, their assets valued
and disposed of, and possible strategic sales.

That the task of identifying candidates for strategic sales and of reframing of the policy objective itself got farmed out to
NITI Aayog, the governments think tank confirms that bureaucrats have little stomach for outright sales.

Adding to their discomfort is a potential legal hurdle. In January, the Supreme Court gave directions to the government to
put on hold plans to offload its residual 29 per cent share in Hindustan Zinc Ltd., an erstwhile public sector company and
a subsidiary of Vedanta since 2003 and advised the government against proceeding on the sale without seeking
parliamentary sanction. Officials are worried that this can apply to past and future disinvestments of all companies that
were nationalised under legislation of Parliament.
Fiscal pressures
The disinvestment targets too suggest that it is a government caught between caution and the pressures of fiscal goals; not
one striving to exit business. Of the disinvestment target of Rs.56,500 crore for this year, Rs.36,000 crore is to be raised
from small sales, which are safer, but which do not dilute government control.

Financial parameters of government companies, such as borrowings and operating profits, are being closely monitored to
identify possibilities of share buybacks, a new kind of disinvestment officials have recently come up with.
In the first of these, on March 30, the CMD of Hindustan Aeronautics Ltd. handed a cheque for Rs.4,284.37 crore to
Defence Minister Manohar Parrikar. On the same day, the government received Rs.198.85 crore from Bharat Dynamics
Ltd.

Money changed hands it went from the two public sector units to the government. The government companies bought
some of their shares from their owner, the government. The only effective change is that money which was on the
companies books is now in the governments account under the head Disinvestment Receipts.

According to one estimate, the top 30 public sector companies hold more than Rs.1.5 lakh crore in cash and bank
balances, which the government has realised is sitting idle. Government companies are being prodded to dip into their
reserves either to invest in growth-generating projects or to float shares buybacks. The buybacks are a bit like the left
hand buying what the right hand is selling, Mr. Debroy says.

The government is taking money out of one pocket and putting it in anotherand getting richer. Its not magic. Its not
privatisation. Its disinvestment.