More about PSU disinvestment

John Samuel Raja of Outlook Business (March 20, 2010) has provided a comprehensive picture of PSU disinvestments in our country. Currently there are about 808 PSUs. Their revenues add up to about Rs. 20,55,000 crores and their net profit to about Rs. 107,000 crores. Their assets are currently valued at about 103% of GDP. But their overall financial performance is disappointing. As many as 360 of them posted a loss in 2008-09. Some 212 PSUs posted profits of below Rs. 10 crores. The net profit was only 1.68% of assets for the PSUs as a whole. The corresponding figure for the BSE Sensex companies is 4.2%.

The PSUs which have been privatized seem to be doing well. Balco and Hindustan Zinc have been turned around by Sterlite. Maruti has also done well after the government offloaded its stake. The same goes for CMC, IPCL, VSNL and Jessop. In contrast, where small stakes have been sold and the government retains control, the functioning has become more transparent and accountable but the improvement has been less spectacular.

Outlook Business quoted Vijay Kelkar, Chairman of the 13th Finance Commission: “The motivation for disinvestment or privatization should not be narrowly seen as being only about maximizing proceeds from the sale of assets. The real big gains come from the full picture. We gain when the private sector attains higher productivity. And this happens even with mere disinvestment, but it happens much more strongly with privatization.”

It is estimated that a 10% stake sale in all the listed PSUs alone could result in revenues of Rs. 180,000 crores. That would help bridge almost two thirds of the revenue deficit. More importantly, by disinvestment, the government can free up resources that can be better utilized for education, health care and various items of physical infrastructure.

Clearly we need a much bolder vision than what the finance minister has articulated in the recent budget.