PSU Reforms Essential for Disinvestment Success

Published: 08th December 2014 06:00 AM  |   Last Updated: 07th December 2014 10:57 PM   |  A+A-

The government’s decision to offload 5 per cent of its stake in the Steel of Authority of India marks the beginning of the implementation of its disinvestment policy. The offloading is expected to raise over `1,700 crore. The government has already lined up many other public sector companies like the Coal India Limited, the Power Finance Corporation, ONGC and NHPC for such offloading of shares. It aims at raising `43,425 crore from disinvestment this fiscal to fund the fiscal deficit target of 4.1 per cent of the GDP. But, the disinvestment process also exposes the weaknesses of the policy, as underscored by the lukewarm response of the investing public.

For instance, on Friday, when the SAIL shares were being offloaded, half of them were picked up by state-owned financial institutions. This does not show disinvestment in a good light. It actually amounts to one arm of the government purchasing what the other arm sells. Earlier, in July and March 2013 when disinvestments in the Hindustan Copper Limited and SAIL were attempted, institutions like the LIC bought most of the shares. This would have served the government’s objective of managing its current account deficit but the aim of disinvestment is much more than that.

Ideally, disinvestment should lead to privatisation of public companies. It is not the business of the government to run companies, both in manufacturing and services. If this is not happening, it is because the PSUs do not inspire confidence among the investors. They are considered no better than white elephants, run by bureaucrats, rather than professionals. They employ a large workforce, recruited mostly on political considerations. The challenge is to reform the PSU managements so that they become competitive and are capable of turning around the companies. The government must have a suitable policy to bring about reforms in the PSUs. Till this happens, it will have to force the state-owned financial institutions to step in and make a “success” of disinvestment.


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