The government is set to put several PSUs on the block. But it must disinvest for the right reason and use the right strategy
Family silver or a piggy bank? The Indian government needs to be clear about this as it goes into another round of disinvestment. Ever since 1991, the government of the day has tried to sell ownership in public sector undertakings (PSUs). After 18 years, there is still no clarity on why the government wants to do this.
THE PIECEMEAL STRATEGY
Guiding principle: Dilute minority stakes, expose PSUs to market discipline. And don’t talk about using the proceeds to plug the fiscal gap.
How to do it: Sell small stakes in high value PSUs like BSNL and Bharat Heavy Electricals Ltd. (BHEL).
Pros: PSUs become market-focussed. Government-managed PSUs act as a counter-balancing force to the private sector.
Cons: Because of government pay scales, policy talent needed to run these companies, save in the top 20 PSUs, will always be a problem. A lack of entrepreneurial drive will be a serious issue.
THE SMART SALE STRATEGY
Guiding principle: Government consolidates its shareholding in all PSUs into a mutual fund-like entity.
How to do it: Accumulate all the holding into a government entity, NatInvest. Appoint a board with top industry professionals. NatInvest buys and sells stakes in its portfolio.
Pros: Natinvest brings regular income to the government. Being a permanent institution, there will be less political opposition to stake sales in companies. PSUs benefit because a top quality board oversees their performance.
Cons: Expect a hue and cry in Parliament if the NatInvest sees its portfolio value diminish. Expect huge lobbying to be on the board.
(This story appears in the 17 July, 2009 issue of Forbes India. To visit our Archives, click here.)