PSE privatisation may not help build ‘Atmanirbhar Bharat’; government must invest in core sector industries

The government disinvestment in public sector enterprises is welcome if the purpose is to help them run by professional managers on the lines of major multinational corporations and not for financing budget deficits. It will be a serious mistake on the part of the government if it disinvests in PSEs without a proper plan about their future management strategy and growth objectives.

China, the world’s second largest economy, has not been built by private enterprises. The country has shown the world how state-owned enterprises (SOEs) can be among the top performers. Nearly 50 percent of their world’s top 50 state-owned enterprises are based in China. No Indian PSE features in this list.

Incidentally, the world’s top two SOEs are from North America. The list includes several SOEs from the US, Europe, West Asia, Africa and Latin America. Two SOEs from Israel — Israel Electric Corporation and Israel Railways Limited — figure in this list. If all of them are doing so well, there is no reason to believe that there is anything wrong with the concept of PSEs.

The proposed disinvestment should not allow backdoor entry of family owned private business houses to take over some of the country’s top state-owned corporations for a song. This happened during the period of the Atal Behari Bajpayee government. Some of the bidders, especially from the community of non-resident Indians or Indians of overseas origin, may be interested in taking over certain loss making PSEs only to strip their valuable real estate assets in and around prime cities such as Mumbai, Delhi, Bangalore and Chennai.

Already one such group is reportedly showing deep interest in taking over Air India. The so-called take-over tycoon is notorious for asset stripping to build personal wealth. The finance minister had in her budget speech stated about strategic disinvestment of Bharat Petroleum Corporation, Air India, Shipping Corporation of India, Container Corporation, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat and Life Insurance Corporation among others.

The Centre will introduce the initial public offer (IPO) of the giant Life Insurance Corporation Limited during FY22. The government has set a divestment target of Rs 1.75 lakh crore for 2021-22. In FY21, the government had budgeted to raise Rs 2.1 lakh crore through divestments but failed to achieve that because of the pandemic.

However, it is the prime minister’s post-budget unapologetic pitch for India’s private sector that adds to the confusion, especially in the light of the future of India’s PSEs, as it may dampen the spirit of the management of state sector enterprises. Nobody denies that the Indian private sector has to play a bigger role in the economy. The question is: what is preventing the sector from doing so?

The private sector, especially in manufacturing, has practically stopped growing in the last three years. The prime minister said that slandering private enterprise was tantamount to distrusting the potential of youth and suspecting their intent. “Wealth creators are also important for the country, only then wealth can be distributed. How can wealth reach the poor, how can jobs be created,” the PM asked.

Unfortunately, the private sector in general has been performing far below the expectation. Despite the government’s stress for self-reliant (‘Atmanirbhar’) India, the private sector has failed even to set up a world class micro-chip manufacturing facility over the last 20 years. The Babus had chosen wrong private enterprises to award license to build such a facility. The bidders’ financial capability was overlooked. In the process, India lost billions of dollars in imports of chips and batteries. What if these private bidders were hand-in-gloves with foreign suppliers?

The sickness of a few PSEs is often magnified although many of those PSEs were originally sick and discarded by private enterprises. It may be worth noting that of some 4,000 and odd listed and traded private sector companies, not more than 500 are generally performing well. Banks are flooded with non-performing assets built out of bad loans to private sector borrowers — big, medium or small. In the last 20 years, few new Indian entrepreneurs have shown any genuine interest in core sector production.

Most of India’s large family-managed large enterprises, barring a few including those run by Mukesh Ambani, Gautam Adani, Azim Premji, Dilip Sanghvi, Shiv Nadar, Kumar Mangalam Birla, Cyrus Mistry, Cyrus Poonawalla, Godrej Family, Sunil Mittal, Bajaj Family, Savitri Jindal and Anand Mahindra, have not invested much in building large enterprises in a decade or more. The private sector defaulters have inflicted massive NPAs on public sector banks. The amount is close to Rs. 400,000 crore, according to RBI.

It is time to make a comparative assessment of the performance of PSEs and allow them to be run professionally.

(IPA Service)

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