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Family Silver Lining

Disinvestment is back, but with a softer tread

Family Silver Lining
Illustration by Sorit
Family Silver Lining
Letting Them Go
  • Oil India Ltd
  • Rural Electrification Corporation
  • Air India (NACIL)
  • Scooters India Ltd
  • Powergrid Corporation
  • Power Finance Corporation
  • Hindustan Copper Ltd
  • National Fertilisers Ltd
  • NHPC


The D Company is back in action, burning the midnight oil after five long years in exile. With the big day—the delayed Union budget—barely a month away, the department of disinvestment (DoD) is busy drafting a detailed roadmap for diluting the government's stake in public sector undertakings (PSUs). It is learnt that the government will look at a phased disinvestment—in the first phase, which will be completed in 2009-10, some 8-10 companies will be taken up.

The obvious candidates are Oil India Ltd (OIL)—which will have an IPO by September—and NHPC. Both have been already cleared for disinvestment by the previous regime. Other firms likely to feature in the list include RITES, Powergrid Corporation, REC and National Fertilisers. "The government has made huge commitments of expenditure before and after the elections...disinvestment has to go ahead," says former disinvestment secretary Pradeep Baijal. The government earned Rs 53,000 crore between 1991 and 2006 from PSU selloffs. In an improving market, the proceeds could be higher—absolutely crucial for public finances.

While the need is clear, and so is the government's intent, what form will disinvestment take? With privatisation becoming a bad word, the UPA is likely to take the IPO route for most companies. Experts feel this is the least profitable exit route—as Baijal puts it, "IPOs give low valuations in a government company as the price-earnings ratio is lower here. But there's really no other option. However, strategic stake sales (which are vehemently opposed by political parties and unions) could also be adopted for a few loss-making firms.

The cautious approach is thanks to the UPA's alliance partners DMK and Trinamool Congress (TMC), who have already expressed reservations, particularly about units in their home states. The DMK has long opposed disinvestment in Neyveli Lignite Corporation (NLC), one of the companies likely to be added to the current list. Says party spokesperson T.K.S. Elangovan, "There is a pressure on the government on disinvestments, but we are opposed to it. We want a revival package for the companies rather than disinvestment." The party will also oppose any disinvestment moves for the sick PSU Hindustan Photo Films, he added.

Similarly, Partha Chatterjee, senior TMC leader and leader of the opposition in West Bengal, feels the government should not relinquish control of the PSUs now. Says he: "In today's recessionary conditions, our conservative approach has saved us. We will be opposed to any hasty decisions on disinvestment." Sources say that the government might allow a concession by pulling back disinvestment in units where TMC and DMK have an interest to the second phase or later so that they can go to the state polls, due in 2011, on an upbeat note.

There could be problems at the companies' union level as well. BSNL, for instance, had to put off its IPO because of opposition from its union. Air India, whose IPO might come up once the market improves, has faced similar issues. The government is now trying to discuss the issue with the unions before proceeding. Says M.K. Pandhe, president, CITU: "Part sell-off is just one step in the route to full divestment. We (the unions) are opposing divestment—but we are totally ignored and the World Bank diktat is being followed."

Clearly, the government will have to play a fine balancing act between the UPA partners and employee unions to pull off the delicate disinvestment exercise. It will also wait for times to get visibly better before pushing the pace. Thanks to political muscle, the Congress is on a stronger footing now—as long as it steers away from the path of privatisation.
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