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PSU selloff will take 250 years at this pace: Baijal

Syed Amin Jafri in Hyderabad

A top functionary of the Indian government has warned that "it may take another 250 years to complete the process of divestments in the public sector undertakings at the present sluggish pace."

Pradip Baijal, secretary, department of divestment, made this 'grim prediction' while delivering a lecture on 'Is divestment a viable option' at the Administrative Staff College of India on Wednesday evening.

He pointed out that during the last two years, the government had sold only one per cent of its total equity in the public sector through strategic divestments in 16 PSUs. This yielded Rs 110 billion to the exchequer.

He asserted that the pace of divestments needed to be quickened immediately if the benefits of privatisation were to be realised by the taxpayers, employees and the economy. As in all other countries, the government here must quickly get out of pubic sector ownership.

The Union government's direct involvement and through holding companies was of the order of Rs 800 billion in all the central PSUs as on March 31, 2000.

The actual divestment in the PSUs and subsidiaries from April 1991 till date has been estimated at Rs 307.38 billion.

Prior to March 31, 2000, most of the equity sales were through sale of minority shares in the market. The policy changed in 2000 and subsequently all sales have been strategic sales with change of management.

Baijal maintained that the poor performance of PSUs had forced the government to give huge subsidies in the form of equity, loans, guarantees and waivers. Thus, the performance of majority of the PSUs had been very disappointing, particularly in manufacturing industries.

However, the vigour with which the divestment policy was being pursued in the last few months had actually led to a huge increase in share prices of disinvesting enterprises and also in the market capital of listed PSU shares.

The public sector market capital in 32 listed companies had increased in value by about Rs 700 billion in the last four months. If the performance could be improved by initiation of more privatisation efforts, huge benefits would accrue to the economy, the government and financial institutions.

He brushed aside the fears that the employees would lose jobs if the PSUs were privatised. Private companies had not retrenched even a single person after they took over the PSUs where divestment was completed.

However, owing to different factors, the workforce in the PSUs has come down from 2.3 million to 1.7 million in the last 10 years.

He also suggested that the government must take up more productive privatisation programme to offset the adverse impact of the current drought situation and to reduce the Union government's mounting fiscal deficit.

"Due to the current drought situation in most parts of the country, the agricultural growth and, therefore, the overall growth rate is bound to be low. We have to convert our present assets to more productive assets through privatisation, and reduce fiscal deficit through a well-structured privatisation," he pleaded.

Baijal lamented that owing to failure to fully capitalise on growth engines such as foreign direct investment and privatisation, India was losing the race to attract investments when compared to countries such as China, Poland and Brazil.

While other nations attracted FDI inflows varying between 3 per cent and 6 per cent of their gross domestic product, India's FDI stood at a dismal 0.5 per cent only, he said and pointed out that China had increased its productivity significantly due to injection of high dosage of FDI over a number of years in both domestic and export sectors.

The liberalisation policy, initiated in 1991 in India, provided enhanced and cheaper access to imported capital goods, global technology and global enterprises which enabled improvement in productivity. But the public sector could not seize these opportunities. And, India would have to learn lessons from China in this regard.

China's upsurge should be a cause of concern to Indian manufacturers. No wonder, the international market, including India, was flooded with Chinese goods.

Another reason for increased Chinese competitiveness was large-scale privatisation of state-owned enterprises and lay-off of state workers in that country.

Quoting a foreign critic who said 'the world cannot marginalise India, but India, if it chooses, can marginalise itself,' Baijal said: "We must guard ourselves against this danger. Privatisation is truly beneficial for a country like India and the benefits to the economy would be huge. No sensible person should oppose the privatisation policies of the government."

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