Govt offers sops to sell PSUs in the red

The government will offer financial incentives to attract buyers for its loss-making public sector units.

The policy on financial incentives, which has been given the green signal by the core group of secretaries on divestment, is intended to kickstart the sale of loss-making units and stem criticism that the government is only selling profitable companies.

The incentives could include loan waivers, government guarantees on liabilities and a moratorium on repaying loans.

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Senior divestment ministry officials said the core group gave the go-ahead for the package on Friday and that the package would now be taken to the Cabinet. "A formal announcement would be made after the Cabinet Committee on Divestment approved it," an official told Business Standard.

Once the policy is in place, the government could push ahead with the sale of 14 loss-making public sector units including Braithwaite and Company, Burn Standard and Company, Bharat Heavy Plates and Vessels Ltd, Tungabhadra Steel Products and Mecon.

"The whole idea of divestment was to sell all PSUs except those in the strategic areas -- defence, railways and atomic energy. Our effort was to make our loss-making companies attractive to the prospective bidders," the government official said.

Of the 232 public sector units run by the central government, 100 are loss-making. Since the government adopted the strategic sale route in January 2000, only four loss-making companies had been sold.

Three of them -- Lagan Jute Machinery Company Ltd, Modern Food India Ltd and Paradeep Phosphates Ltd -- are on the way to profitability. The Indian Tourism Development Corporation's 18 hotels, handed over to private management, were also incurring losses.

According to officials, the government would not spend on plant, machinery and equipment for the enterprises. "Investments for the turnaround would be the strategic partner's responsibility. The government's job got over with the cash and non-cash benefits," the official said.

Ruia Cotex, which bought the loss-making Jessop, has unveiled a big expansion plan for the company. The Jessop sale was delayed for a year by litigation and a petition is still pending in the Supreme Court. Ruia Cotex took over Jessop in August.