Autonomy At Last?

THERE'S stirring news on the public sector disinvestment front after the uneasy silence of six months. In a series of wide-ranging recommendations, the Disinvestment Commission wants the chronically sick Modern Food Industries Ltd (MFIL) put on sale, ITDC hotels radically restructured and demerged up to 74 per cent of equity, and the Gas Authority of India Ltd (GAIL) shed of a quarter of its Government share. In its report submitted to the Government on February 20, the Commission has laid down detailed norms for divesting the 40-odd PSUs referred to it. GAIL, ITDC and MFIL have been listed for the third tranche of disinvestment in the current fin-ancial year, as promised by Finance Minister P. Chidambaram in his budget speech last year. In 1996-97, disinvestment in only two PSUs—Videsh Sanchar Nigam Ltd (VSNL) and Indian Oil Corporation (IOC)—has been approved but not followed through.

Rising competition, explains Commission Chairman G.V. Ramakrishna, has made it necessary to lay down the norms for judging the status of PSUs and take a long-term view of their working conditions vis-a-vis the private sector. The report says: "The essence of a long-term disinvestment strategy should be not only to enhance budgetary receipts, but also minimise budgetary support towards unprofitable units." The strategy is: reclassify PSUs into core or non-core sectors, judge them on the basis of their category and performance, and extend benefits and incentives, including full autonomy, to the best performers. Disinvestment would be made up to 49 per cent in core firms and 74 per cent in non-core ones.

The three PSUs selected reflect the new approach. MFIL has a large market for its products and matching infrastructure and production facilities. But its failure to utilise its strengths, huge overmanning and low lab-our productivity would frustrate a restructure. Therefore, it should be sold outright through competitive bidding on an as-is-where-is basis. In contrast, the 74 per cent divestment of ITDC would take place through a gradual demerger of its hotels, as hotels of different grades throughout the country were harming its image. But the recommendation that the public sector should be out of luxury segments like hotels may ruffle a few famous feathers.

The partial disinvestment in profit-making GAIL is a case of selling a part of the family silver to meet funds needs. A 25 per cent sell-off would translate into 20 crore shares. Even at the current market price of Rs 100, which is low due to the lacklustre state of the capital markets, this PSU would fetch the Government Rs 2,000 crore. According to the new list, core firms comprise 19 PSUs including giants like SAIL, MTNL, Air India, NTPC and the oil majors. The non-core list includes 15 firms like Shipping Corporation of India, IPCL and fertiliser PSUs, where up to 74 per cent disinvestment is possible. Five PSUs—Bharat Electronics, Garden Reach Shipbuilders, Hindustan Aeronautics, Engineers India and RITES—are left out as there is confusion over their status. The Commission feels that PSUs should be restructured before disinvestment to boost enterprise value and intrinsic share value. Also, to increase public involvement in PSUs, their shares should be offered to the small investors at a discount of 10 per cent. Thirdly, PSUs should be given total autonomy with clear accountability and the board of directors should be the final body of approval.

Other radical suggestions: a Disinvestment Fund, dealing with disinvestment and PSU restructure, to be merged with the National Renewal Fund; a satellite body—the Standing Empowered Group—of finance, public enterprise and other administrative secretaries to assist in disinvestment; a Pre-Investigation Board to check corruption in PSUs; and a big salary hike for PSU chief executives.

The onus of the final disinvestment process now rests with the Government. Ramakrishna's suggestion of granting full autonomy to the strong performers and partial autonomy to moderate performers, if accepted, may smoothen the disinvestment process. Despite the Left parties and the weak capital market blocking the move, a cash-strapped Government may soon flag off disinvestment in the next fiscal year.