There seems to be a paradox in the government?s approach to central public sector enterprises: it is aggressively pursuing partial disinvestment of its stakes in CPSEs on the one hand and risking money on the revival of sick CPSEs on the other. After clearing a financial package for the ailing Scooters India recently, the government plans to take up the revival cases of about a dozen sick companies in 2013-14. Is there a case for spending the taxpayer’s money on sick enterprises? Two experts argue:
Sick units don?t have a business case to survive
Examine the prospect of privatising the viable units and closing down the rest
If the philosophy behind PSU divestment is to improve transparency and accountability, it is indeed ironic that the government intends to throw good money after sick PSUs, many of which are beyond redemption. It is important to examine the relevance of PSUs in 2013 as the idea behind setting them up in the 60s is well past its sell-by-date.
A combination of a deep mistrust of domestic capitalists and the need for rapid industrialisation to create jobs led to the formation of public sector undertakings (PSUs). Many PSUs like ONGC, BHEL, SAIL, NTPC, Coal India, have become industry leaders, achieving the intended objective. However liberalisation of the economy in the 90s presented a new challenge of competition to the PSUs that was unknown to them in an era of state controls and monopoly.
Operating in a milieu of scarcities, state domination and quixotic socialism, PSUs increasingly mirrored the bureaucracy of the day as they got over-staffed, inefficient and became the vehicles to dispense political patronage.
Companies in sectors such as natural resources (ONGC, Coal India), heavy industries?due to large government orders?(BHEL), defence (BEL, BEML), metals?which entailed huge investments that could not have been possible without effective backward integration and an open market?(SAIL, NALCO, RINL), and utilities (NTPC) continued to be successful as they essentially had business clients.
Moreover, they had adequate time and a huge early mover advantage to respond to emerging competition. But consumer- facing PSUs such as BSNL, MTNL, Air India, Scooters India, etc. gradually lost ground.
Banks are the only exception among PSUs which have grown and are more than a match for their private sector peers. It was largely possible due to the massive voluntary retirement schemes adopted by PSU banks in the early 2000s.
If the government perceived a shortage of entrepreneurial abilities and capital in the 60s, is the situation in 2013 similar? Does a paltry revenue receipts/GDP ratio of 10.5% offer enough resources to the government to invest in businesses? What should be the priority of a socialist state? Building businesses to provide comfortable jobs and cozy retirement benefits to a few or to invest in social sectors such as education and health for the millions? A government should facilitate a business friendly environment by ensuring ethical conduct, fair play and a skilled workforce.
There are 64 sick PSUs and the government plans to revive about a dozen of them?after pumping in R200 crore in Scooters India. However, the government?s initiative to revive sick PSUs has less to do with the criticality of that business to the nation and more to do with securing the jobs and creating vote banks. It is almost certain that these entities after receiving the bailout package will end up on the sick bed again in a few years as they do not have a business case to survive.
So it will be a good idea to examine the prospect of privatising the viable units and closing down the others. Changing times demand a relook at the objectives of social welfare, from direct job creation to facilitation of job creation. It is high time the government realised that except in a few sectors of strategic and national importance, it has no business to be in business.
The author is managing director, institution, Angel Broking
