People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


Vol. XXIX

No. 49

December 04, 2005

ALTERNATIVE PROPOSAL FOR RESOURCE MOBILISATION

 

Investment Without Disinvestment

                                                                                               

Dipankar Mukherjee

 

TWO major revival schemes approved by the UPA government since it came to power involved considerable fund-based and non-fund based financial investments. Both are in private sector with investments coming from public sector. These packages were carried out without waiting for “return” on any Investment Fund created out of disinvestments and, of course, without any other or alternative proposal from the Left for resource mobilisation being considered.  The first one was the takeover of Global Trust Bank by public sector Oriental Bank of Commerce Bank (OBC) involving Rs 2,500 crore  and  the other one is  revival of Dabhol Power Company (DPC) involving Rs 10,000 crore through two PSUs, NTPC and GAIL along with public sector financial institutions and banks.

 

However, there was a difference. In the case of OCB, the finance minister took a pro-active stand, quite rightly so, in the interest of the thousands of depositors. But in the case of the revival of DPC, through its conversion to a new company – Ratnagiri Gas and Power Company – the finance minister reclused himself from the exercise of revival of DPC on ethical grounds. The inference is that notwithstanding the non-existence of a so-called “investment fund”, “other proposal from Left on resource mobilisation” and even with or without finance minister’s involvement, the revival of private outfits costing more than thousands of crores of public money is possible.

 

This simply shows where there is a will, there is a way.  Even NTPC and GAIL, the two navaratna PSUs,  could be roped in to revitalise a foreign private power company which was found  non-viable because its tariff  was incompetitive (in global terms). Look at it the ­­­other way, GAIL is a gas transportation company but still it  could be engaged to infuse funds to the tune of Rs 500 crore in a private power company! But if we talk about reviving PSUs like Hindustan Cables (which supplies cables to BSNL and MTNL) by BSNL or MTNL, Bharat Heavy Plate & Vessels (BHPV) by Hindustan Petroleum, its major client, or public sector wagon making units like Burn Standard, Braithwaite, Bharat Wagon units by Indian Railways, BCCL and ECL by merging with Coal India etc, we will be charged of blasphemy by reformers in the government and walk the talkers or talk the talkers in corporate media.  

 

Not only that, the 30 odd sick PSUs, recommended for revival by Board for Reconstruction of Public Sector Enterprises (BRPSE), reportedly envisages infusion of Rs 418 crore for revival, excluding the non-fund requirement of financial restructuring. These revival packages are kept pending for last one year on the plea of fund crunch. One thing is certain, revival of all the sick CPSUs,   would not cost more  than the cost involved in reviving DPC,  i.e. Rs 10,000 crore. Money is not the problem. It is the lack of will  which cannot be substituted by any alternative proposal for resource mobilisation. 

 

WHERE IS THE MONEY?

 

At present there are 230 operating central public sector undertakings (CPSUs) as per the ‘Public Enterprise Survey, 2003-2004’. Out of these, 140 are profit-making units and 90 are loss-making units. The net profit after tax in 2003-2004 if all the CPSUs are taken together is Rs 53,168 crore and dividend paid to the government was Rs 15,282 crore. And these CPSUs have reserve and surplus of Rs 2,59,576 crore.

 

Analysis Of Investment By The Central PSUs (2003-04)

(Rs Crores)

S. No

Name of the Public Sector Undertaking

Reserves and Surplus

 

Investment

Work In Progress

Cash & Bank Balance

Net Worth

 

1.

Cotton Corpn. of India Ltd

221

0

0

17

Positive

2.

National Fertiliser Ltd

590

0

1

196

Positive (L)

3.

Bharat Dynamics Ltd

303

1

1

1167

Positive

4.

MRPL Ltd

349

0

3

27

Positive (L)

5.

Bharat Earth Movers Ltd

564

4

2

508

Positive

 

6.

Manganese Ore (India) Ltd

136

0

2

71

Positive (L)

7.

Dredging Corpn. of India Ltd

761

0

13

361

Positive

8.

Bharat Heavy Electricals Ltd

5051

29

109

2660

Positive (L)

9.

Rashtriya Chemicals & Fertilisers Ltd

695

0

19

32

Positive (L)

10.

Kudermukh Iron Ore Co Ltd

716

17

5

603

Positive (L)

11.

Indian Rare Earths Ltd

130

0

4

129

Positive

12.

Hindustan Newsprint Ltd

109

0

4

4

Positive

13.

Electronic Corpn. of India Ltd

163

2

6

212

Positive

14.

Bharat Electronic Ltd

1169

26

34

1435

Positive (L)

15.

RITES Ltd

279

20

0

139

Positive

16.

Northern Coal fields Ltd

3126

115

113

60

Positive (L)

17.

National Minerals Dev Corpn. Ltd

1895

75

66

1092

Positive (L)

18.

Kochi refineries Ltd

1667

71

74

305

Positive (L)

19.

Mahanagar Telrphone Nigam Ltd

9698

381

482

2553

Positive (L)

20.

Container Corporation of India Ltd

1312

3

115

599

Positive (L)

21.

Pawan Hans Helicopters India Ltd

122

0

12

504

Positive

22.

Garden Reach Ship Build & Engrs Ltd

160

0

16

570

Positive

23.

Central Warehousing Corpn

736

60

14

30

Positive

24.

Goa Shipyard Ltd`

153

0

18

136

Positive

25.

Oil India Ltd

3855

225

235

1176

Positive (L)

26.

Bharat Sanchar Nigam Ltd

50518

200

5855

11557

Positive (L)

27.

IBP Co Ltd

603

16

76

664

Positive

28.

IRCON International Ltd

707

122

0

479

Positive

29.

Airport Authority of India

2603

10

456

1251

Positive (L)

30.

Shipping Corpn. of India

2115

1

386

483

Positive (L)

31.

Engineers India Ltd

734

137

1

664

Positive

32.

Andrew Yule & Co Ltd

109

16

5

26

Positive

33.

Bongaigaon Refinery & Petrochem Ltd

353

66

12

3

Positive

34.

Tlecom Consultants India Ltd

381

86

0

240

Positive

35.

GAIL (India) Ltd

6599

772

814

1568

Positive (L)

36.

Mahanadi Coal fields Ltd

2157

344

220

166

Positive (L)

37.

Numaligarh Refinery Ltd

400

0

126

26

Positive (L)

38.

National Aluminium Company Ltd

3112

200

791

98

Positive (L)

39.

MMTC Ltd

622

198

3

2819

Positive

40.

Balmer Lawrie and Co Ltd

159

50

2

10

Positive

41.

Hindustan Petroleum Corpn. Ltd 

7404

2050

496

197

Positive (L)

42.

Western Coalfields Ltd

1449

321

189

340

Positive (L)

43.

STC of India Ltd

266

97

0

3014

Positive

44.

ONGC Ltd

39117

15468

983

8742

Positive (L)

45.

Indian Oil Corpn Ltd

21879

5779

5486

698

Positive (L)

46.

Neyveli Lignite Corpn. Ltd

5169

2591

183

1208

Positive (L)

47.

Chennai Petroeum Corpn. Lt

1462

12

854

12

Positive (L)

48.

Bharat Petroleum Corpn. Ltd

5550

1977

1408

627

Positive (L)

49.

NTPC Ltd

28275

17347

7495

609

Positive (L)

50.

Power Grid Corpn of India Ltd

5454

1851

3 876

775

Positive (L)

51.

Steel Authority of India Ltd

907

714

382

2017

Positive (L)

52.

Nuclear Power Corpn. Ltd

7739

2647

9070

5166

Positive (L)

53.

Narmada H.E.D. Corpn. Ltd

617

0

1529

659

Positive (L)

54.

NHPC Ltd.

4534

3663

7781

174

Positive (L)

55.

Coal India Ltd

3381

11114

2

1107

Positive (L)

56.

NEEPCO Ltd

209

955

472

185

Positive (L)

57.

ONGC Videsh Ltd

177

2987

3233

380

Positive

Positive (L) denotes that company has Net Worth of more than Rs 1000 Crore.

Source: Public Enterprises Survey, 2003-04.

But the most startling point is the low rate of investment of the available reserves.   While the government is, time and again, harping on lack of resources to justify its one-point  agenda of  disinvestment of profitable PSUs, the reserves available within PSUs (as shown in the accompanying table) is an eye opener for those who are genuinely interested in investment in public sector and not in disinvestments. The table shows a study of 57 public sector undertakings, which have both positive Net Worth and Net Current Assets. The balance sheet data indicate that only 17 PSUs had invested more than 33 per cent of their “Reserves & Surplus” in the year 2003-04. The remaining 40 PSUs have invested less than 33 per cent, and a considerable number have practically not been investing at all. In a few cases the magnitudes are alarmingly large. BSNL, for instance, which has reserves of over Rs 50,000 crore and a cash/bank balance of over Rs 11,000 crore, has invested only 12 per cent of its reserves and surplus (S.No 26), and similar is the case of the MTNL (S.No 19), with only 9 per cent investment. Almost all the PSUs in the hydrocarbon sector too appear to be underinvesting given their profitability and internal accruals. There are, of course, some companies which are undertaking aggressive investments, but these are relatively few (only 8 or 9 in this sample).

 

In the aggregate, there are 50 CPSUs which collectively have reserves and surpluses of Rs 2,21,157 crore, amounting to nearly 7.5 per cent of GDP, but are actively investing only Rs 81,805 crore, i.e. 37 per cent of the available resources. In other words, more than 4.5 per cent of GDP is locked up by these companies in bank deposits and government securities. If GAIL, NTPC or OBC funds can be used for reviving private sector, why not a part of CPSU reserves be used for revival of CPSUs? We need a revival fund and not a disinvestment fund alias, ‘Investment Fund’ as per government’s terminology.

 

As a matter of fact there are two major causes for lack of dynamism in investment of the PSUs.             Firstly, successive governments since 1991 lost interest in actively guiding and promoting the role and functioning of the PSUs. Most  PSUs  are also not being allowed to chart their own course with long term vision in the development of their sector, or in the economy at large. In the absence of such  vision and with increasing government encouragement to private sector participation in practically all the sectors, there is neither a push to invest nor an obvious need which has to be met. Secondly, the internal impetus to investment and growth of the PSUs has been constrained in the last 10 years as  there has been a growing demoralisation due to the uncertainties caused by the continuous talk of  disinvestments and privatisation due to which most PSUs cannot take a long-term view of their business strategy. `

 

COCKTAILISATION OF PUBLIC SECTOR

 

The government would in all likelihood come out with the plea that the reserves mentioned above cannot be utilised by  sick or  other profitable PSUs  as the  bulk of the reserves and surplus of the CPSUs is in the form of depreciation reserves and they cannot be appropriated for any purpose outside the company as per the law. But is it such an insurmountable problem for a government which has so many competent financial advisers in its midst? After all, in the case of revival of DPC, taxation law could be amended recently through an ordinance providing income tax exemption to the money repatriated by GE and Becthel and extending tax benefits to the newly formed Ratnagairi Gas & Power Pvt Ltd. The question obviously is of the will, which at present is heavily tilted towards private sector.

 

There is a genuine apprehension that lack of investment of reserves of PSUs is a  part of the game plan to utilise these reserves in public-private partnerships, i.e. public money plus private ownership in the first phase, and later when political support of the “other” would not be necessary, these PSUs would be privatised along with their reserves. So, for the time being disinvestments of a small portion of equity is a bitter option for the UPA government. In cocktail circuits the reformer may call it “Chhota peg” instead of “Bada peg”. The objective is the same – intoxicating  feeling of being privatised. The lack of resources is not the issue. The lack of political will is.