Investment Without Disinvestment

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.

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.

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.

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.

People's Democracy

COCKTAILISATION OF PUBLIC SECTOR