FOR the past three decades, it proved to be the dreaded ‘D’ word. Disinvestment ensured that the cash-rich public sector undertakings (PSUs) remained the milking cows for the political elite, either directly or indirectly. Earlier, they were inefficient because their earnings were religiously siphoned off by politicians, civil servants, senior managers of the companies, and private contractors. Post-privatization, they were used to cook the government’s books, and to further crony capitalism. Thus, the PSUs remained the sacred placed where the powers-that-be offered prayers of corruption, and receive illegitimate blessings.
Critics said that the country’s ‘Crown Jewels’ and ‘Family Silver’ were sold either for pennies, or at high prices, depending on who they were sold to. The former was the case if the buyer was a private business person, and the latter when PSUs were sold to other PSUs. When the governments forced profitable state-owned entities to use their bulging cash reserves to buy the shares in other similar companies, it was a clear case ‘Rob Peter to Pay Peter’. That is, only the shares changed hands, and the money was transferred from one pocket, the buyer PSU, to the other one, government exchequer.
The proceeds were used to finance, or manage, the growing fiscal deficits, which were the result of governments’ profligacy. They were also used in meaningless acts of throwing money to ‘buy’ vote banks through welfare schemes, like subsidized housing, electricity, food, and fuel, and other freebies like loan waivers, which themselves became sources of corruption. Hence, disinvestment, whose ostensible aim was to make the PSUs more efficient, and whose underlying objective was to raise money to fund large infrastructure projects to fuel growth, became a source of colossal wastage.
More importantly, the disinvested PSUs didn’t benefit much. In most cases, the government retained ownership and management control over them. In a sense, the ‘Temples of Modern India’ further creaked and cracked. The traditional prayers and blessings continued, and the political and business pilgrims became richer. Genuine privatization took a back seat, apart from a short period of a few years. But this too was a scam as the state-owned firms, which had huge tangible assets like real estate and cash, were deliberately or unknowingly sold to private players for pittance.
From left pocket to right one
From the beginning, i.e. 1991-92, the government sold its stakes in PSUs in a piecemeal fashion to state-owned financial institutions such as public sector banks, state-owned insurance firms, and other agencies like the now-defunct Unit Trust of India (UTI). For example, in 1991-92, the government-held stakes in several PSUs were dubbed ‘very good’, ‘good’, and ‘average’, and clubbed together in various ‘bundles’. The UTI was the largest buyer of these bundles, coughed up over 50% of the proceeds. One hand of the government, UTI, gave money to the other hand, the exchequer.
This process continued over the next three decades in various forms and formats. It reached its zenith with the much-hyped merger of the two state-owned oil giants, explorer ONGC and refiner-marketer Hindustan Petroleum, in 2018. The latter became the subsidiary of ONGC, which paid a humungous ₹37,000 crore to government for the acquisition. This merger seemed like a logical extension of what happened in the late-1990s when the Atal Bihari Vajpayee- and BJP-led regimes of 1998 and 1999 introduced the concept of ‘cross-holding’ among the oil and gas PSUs.
CROSS-HOLDING implied that oil majors would hold minority stakes in each other. For instance, ONGC bought a stake in Indian Oil which, along with the gas company, GAIL, held shares in ONGC. Critics felt that cross-holdings and mergers were aimed to merely enrich the governments. Nothing changed on the ground. In the case of cross-holdings, the investment was only financial in nature, and not strategic. This is because the minority PSU shareholders didn’t have any say in the management and operational decisions. They were only used to bolster the revenues in the government’s annual budget.
In the case of the ONGC-HPCL merger, the government touted it as the beginning of the formation of giant, global-size, and mega Indian oil giants, which could compete with the other global majors for international oil and gas reserves. Such an Indian player would have the financial clout, management bandwidth, and political power to achieve this objective. In addition, there would synergies, which would cut costs, and enhance profits. Nothing like this happened. Both ONGC and HPCL continued to be run as separate companies, although the latter was technically a subsidiary of the former.
Unfortunately, the cash with the profitable PSUs was misused in other ways too. One of these was the huge special and one-time dividends that were paid by a few PSUs to their majority shareholder, the government. During the UPA-2 regime, which was a coalition headed by Manmohan Singh that ruled for five years between 200910 and 2013-14, the Centre earned almost ₹114,000 crores as overall PSUs’ dividends. The figure zoomed to almost ₹206,000 crores over the next five years (2014-15 to 2018-19).
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