Private sector an equal culprit in erosion of wealth
The sheer loss of investors’ wealth by Anil Ambani-run businesses is astounding. One by one, all his companies are going down the bankruptcy road. After Reliance Communication and Reliance Capital, two more companies—Reliance Infrastructure and Reliance Power—are now facing the same fate, undergoing the rigmarole of the insolvency and bankruptcy process. Both Reliance Power and Infrastructure have informed the exchanges that financial creditors have knocked NCLT doors to start bankruptcy proceedings against them. They have, however, also stated in their regulatory filings that the management of the companies are trying to settle the issue with creditors out-of-court.
One could only pity the investors who reposed their faith in the once corporate behemoth. They are now staring at massive erosion of their wealth. Take for example Reliance Capital, which had a net worth of around Rs 17,000 crore in 2017 and today it has a negative net worth of Rs 11,000 crore. Its market cap has fallen from Rs 82,000 crore to Rs 350 crore now, more than 90% drop in investors’ wealth.
Anil Ambani is not alone, though. There are many others, be it promoters of Essar Steel, Videocon, DHFL, Alok Industries, Bhushan Steel. The cash-burning new-age (technology) companies, which recently got listed, have been equal culprits too. For years we have been told about the ‘mythical’ power of private entrepreneurship, its efficiency and the value it creates for shareholders. We have been continuously reminded of how government-owned entities have eroded shareholders and taxpayers’ wealth, and that privatisation is the way to go for an efficiently-run economy. And while that may be true, we must not overplay the privatisation bit and leave an impression that it is a sure-shot way to success. There are enough examples of failures of privately-run businesses that have collapsed due to incompetence, lack of vision and, in some cases, greed of management.
If we do blame the public sector for its incompetence, we must also highlight the sheer recklessness of private, especially family-run, businesses. If one has any doubts, just check the cases under the Insolvency and Bankruptcy Code.