PSU Disinvestment: Niti Aayog Must Effect A Paradigm Change In Govt’s Approach

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The Niti Aayog, according to some reports, is in favour of unlisted public sector undertakings (PSUs) being privatised. This will, then, be the first time since 2001, that a government agency has uttered the dreaded ‘P’ word. The first government functionary to do so was then Finance Minister Yashwant Sinha in his own dream budget of 2001-02.

But, Prime Minister Narendra Modi is not in favour of big ticket or even wholesale privatisation of PSUs. His recent statement to the Wall Street Journal – “you can’t suddenly get rid of the public sector, nor should you” – is actually a nuanced statement (he preceded that with “in any developing country in the world, both the public and private sector have a very important role to play”). That he is in favour of a strong public sector is a well known fact.

So, will the Niti Aayog – which has been tasked with the responsibility of identifying PSUs for disinvestment as well as the mode of disinvestment – manage to get the Prime Minister to change his mind?

But are the two positions on PSUs contradictory?

Not really.

Modi has a point when he says that the public sector has an important role to play in a developing country. There could be areas where the private sector is not interested in getting in. The government may, perhaps, need to have a role to play in strategic sectors. But beyond what should be a small list, why should there be any case for the government owning and managing businesses?

Niti Aayog, too, is talking about privatising only unlisted PSUs and that is disappointing. Why should PSUs which are in areas where there is strong private presence or where there is no need for government continue to be owned and managed by the state? Why, for example, should the government continue to run Andrew Yule, which is into a lot of things from tea to capital goods just because it is a listed company? Or Balmer Lawrie, Hindustan Photo Films and Mahanagar Telephone Nigam Ltd (MTNL), for that matter?

Conversely, if being listed or unlisted is going to be the thumb rule, then can we possibly see Air India and Bharat Sanchar Nigam Ltd (BSNL) being privatised? Air India, along with MTNL, figures in a list of sick PSUs. The news report also says the Niti Aayog feels unviable PSUs should be shut down immediately so that they are not a burden on the exchequer. Air India ticks this box as well.

Minister of State for Finance, Jayant Sinha, is irritated at the constant references to Air India and MTNL. “You have to recognise that we have to strengthen these organisations first before we dispose of them at a fire sale price,” he said in this interview to Swarajya earlier this year. More recently, Civil Aviation Minister Ashok Gajapathi Raju said that Air India’s books are so bad that no one would buy it. But how does one ensure that this does not involve throwing good money after bad?

In the case of Air India, Ashwani Lohani has been brought in to turn it around. But this report raises serious doubts about whether anything will come of the revival efforts. That question will also be relevant in the case of the 25 PSUs which, according to the report, the Niti Aayog has identified for revival.
In 2014-15, the number of profit making PSUs went down and so did their combined profit, while the number of loss-making PSUs and their combined losses both increased. Look also at the sectors where the PSUs are largely profitable and those in which they are largely loss-making.

It is no surprise that most of the profit-making PSUs are in areas where the government either has a monopoly or is a dominant player – mining, steel, petroleum, power generation and transmission, financial services. PSUs are also doing well in heavy engineering, transportation equipment, contract and construction services, industrial development and tech consultancy services, tourist services.

On the other hand, the government has been an abysmal failure in sectors like textiles, consumer goods, transport services and telecommunication services. PSUs in the chemicals and pharmaceuticals sector, agro-based industries, medium and light engineering are also making losses.

What is wrong if the public sector is got rid of in these sectors, and even in some sectors where PSUs make profits? The government’s monetary and manpower resources are needed in a whole lot of other areas which involve the delivery of public goods.

The Niti Aayog should have used the touchstone of role of the state to decide which PSUs should be privatised and which should be revived. As an ideas generating and implementing body, it should have used the responsibility given to it to bring about a paradigm change in the approach to public sector disinvestment.