Fifth Time Lucky?

THEIR first four reports evoked only a mild response from the government. Most of their recommendations are yet to see the light of day, and trade unions have been up in arms against almost all their proposals. But this hasn't quite deterred the Disinvestment Commission—which released its fifth report last week—from once again recommending a set of public sector undertakings (PSUs) in which the government should sell a part or whole of its stake.

Between February and November 1997, the commission has released five reports suggesting disinvestment in 26 companies out of the 49 referred to it by the government. This time round, it has given its recommendations on seven PSUs: the high-profile National Thermal Power Corporation (NTPC), oil company IBP Limited, leading technical consultancy Engineers India Limited (EIL), Engineering Projects (India) Limited, NEPA Limited, Ranchi Ashok Bihar Hotel Corporation and Utkal Ashok Hotel Corporation Limited.

However, unlike its earlier recommendations, the commission this time has also proposed a strategic sale route for the PSUs. This stems from the government's delay in disinvesting in the PSUs recommended by the commission as well as stagnation in the country's capital markets, which makes getting a reasonable price for the PSU shares difficult. The commission is thus trying to extract the best bargain in a recessionist situation.

For NTPC, the commission feels disinvestment should be postponed till the power sector reforms fall in place. For IBP Ltd, it suggests that the government sell off 51 per cent. For the troubled EPIL, the commission has recommended a 74 per cent sale, or a winding up in case there are no buyers. In the case of the blue-chip EIL, it has given four options including sale to select PSUs, strategic sale of 30 per cent and employee stock option plan. It has also suggested a sale of 74 per cent for Hindustan Prefab, 51 per cent for NEPA and full sale for Ranchi Ashok and Utkal Ashok Hotel Corporations.

While the commission has been doing its job in right earnest, market conditions have stymied the government's efforts. The fate of two of its much hyped GDR issues—GAIL and MTNL—is uncertain after turmoil in the Southeast Asian currency and stockmarkets made European markets volatile and suspicious of Asian stocks. The GAIL issue has already been postponed and MTNL is yet to begin its roadshows.

As a result, the government's hopes of mobilising Rs 7,000 crore from the disinvestment programme in the current financial year seem to be far-fetched. Till date,not even Rs 1,000 crore has been raised. It would be foolishly optimistic to believe that another Rs 6,000 crore can be raised in the four months remaining in the fiscal year, with the stockmarkets down, the small investor staying away, and the number of primary issues down to adwindle. Concedes commission chairman G.V. Ramakrishna: "Unless there is a rapid improvement in the market conditions, we cannot go anywhere near the Rs 7,000-crore target figure. Disinvestment needs to be handled carefully and there aren't too many alternatives now. However, there are signs of an economic revival with industrial growth looking up in the second half of the current fiscal."

But stockmarket sentiments and the Southeast Asian currency crisis are not the only causes of the collapse of the 1997-98 disinvestment programme. Barring GAIL and MTNL, which made it to the GDR stage (if these GDR issues don't come through, it will create circumstances beyond anyone's control), there has been very little action from the government's side regarding the remaining PSUs. The commission has been making it clear from the beginning that in order to boost enterprise and enhance the intrinsic share value of the PSUs, it is essential that these PSUs are restructured before disinvestment. However, almost nothing has been done on this front. And till investors get a clear message that the government is serious about making PSUs more independent and efficient, and less prone to the whims and fancies of politicians, they are unlikely to queue up to buy shares of any company other than the few blue-chips.

The government's much-touted Navratna scheme of creating global-quality PSUs has already come a cropper. The politicians seem unwilling—or unable—to provide the sort of independence they had promised the PSUs. The idea of recruiting private sector professionals to run PSUs doesn't seem to be working: professionals aren't enthused enough. And the industries minister Murasoli Maran's backpedaling on the divestment of Modern Foods, after having promised to follow the commission's recommendations on the issue, has raised further questions about the government's seriousness in the whole process. Will the commission's fifth report too then go the way of its first four?