The more things change, the more they stay the same. The ‘new’ disinvestment policy announced on November 5 looks suspiciously like the one that went before it: the criteria for public sector undertakings have not changed, and managing fiscal constraints is still the overriding rationale for disinvestment. The change is in the use of the monies realized: a special dispensation will allow the government to use proceeds for capital expenditures related to social programmes and objectives — mainly education and healthcare — instead of being sequestered in the National Investment Fund set up for the purpose. Some observers have suggested that part of the proceeds could also be used to fund the government’s share of infrastructure projects implemented on a private-public partnership basis.
The history of disinvestment efforts since 1991 is sobering: in only one or two years of the past 18 have the monetary targets of disinvestment been met. Cumulatively, less than 50 per cent of the proposed disinvestment funds have actually been realized. Political challenges — mainly from the Left — have delayed and interfered with the process. But the three year rolling plan — suggested by the special dispensation — opens up two possibilities that could result in a better rate of success. First, by making it clear that a total amount of Rs 75,000 crore will be raised over three years, it readies investors — both institutional and retail — in planning portfolio and absorption capacity. Second, planning an initial public offering or a strategic stake sale takes about six months. There are 159 companies that meet the criteria and are potential candidates. But disinvestment could still come a cropper for a number of reasons.
While market appetite for PSU equity may be high at this time, much of that demand is based on current liquidity conditions. As central banks start unwinding the easy monetary conditions around the world, tighter money could end up being very discriminating. PSUs could end up competing against large private sector companies for a share of the same investor rupee, though most market observers consider it unlikely that PSU IPOs will crowd out private sector IPOs. The biggest problem, however, is one of process. The roughly 200 plus PSUs are spread across 32 Central ministries. A committee of secretaries has been set up to oversee the process, but that does not lessen the coordination issues associated with such a large spectrum of officialdom. It poses a classic ‘collective action’ problem. Rather than appoint advisors and investment bankers for each issue, the government should think of appointing advisors and consultants for the whole process — and that is a test of political courage.