(The policy of the Government on disinvestment has evolved over a period of ten years. It started with selling of minority shares in 1991-92 and continues today with emphasis on strategic sale. The implementation of the present policy has shown tremendous benefits of privatization to the taxpayers, the economy, the stock market and the employees. This paper analyses these benefits and tries to allay the fear of the unknown amongst the various stakeholders of the public sector.)

The sources of equity investment in CPSUs as on 31st March 2000 were as follows: -

Rs. in crore

• Central Government 69513
• Holding Companies 8971
• State Government 1089
• Foreign Parties 655
• FIs and others 2206

Total 82434

Thus, Central Government's direct involvement and involvement through holding companies was of the order of Rs. 78484 crore. Prior to 31st March 2000 most of the equity sales were through sale of minority shares in the market. The policy changed around 31st March 2000 and subsequently all the sales have been strategic sales i.e. with change in management. The benefits of disinvestment through the two policies need to be analyzed.

The Government has received Rs. 11314/- crore from these sales. Some sales also lead to annual revenue. The Government of India's borrowing rate is of the order of 10%. Hence, this realization would lead to a benefit of Rs. 1140 crore to the country every year in perpetuity. As against this benefit, the dividends received by Government on its equity, which has been sold, averaged Rs. 52.41 crore during the last eight years. However, PPL and Jessop led to an average annual outgo of Rs. 126 crore as shown in the Table 2. Thus, the Government lost Rs. 73.59 crore ever year due to its majority equity presence in these companies. The sales of part equity in 16 companies would bring an annual real benefit to the economy to the tune of Rs.1140 + 73 = Rs. 1213 crore. There can be no justification for maintaining public sector character in these industries, if the taxpayer has to lose more than Rs. 1213 crore every year by non-privatisation.

There is often an argument that the Government should not sell profit-making companies. BALCO was a profit making company, wch earned the Government an average dividend (over eight years) of Rs. 5.69 crore every year on the equity sold. As shown in Table 2, the Government would now get Rs. 82.65 crore every year. CMC was a very well managed and profitable company, yet the average dividend was only 0.80 crore. The Government's benefit now is Rs. 15.2 crore annually. Similarly, Maruti Udyog Ltd. gave average returns to the tune of Rs. 13 crore annually to the Govt. and IPCL gave Rs. 16.24 crore on equity sold against Rs. 242 crore and 149 crore respectively which can be expected now. There can possibly be no justification of maintaining public sector character in such companies. The argument can be multiplied in each sale implementedhi so far.

Before the year 2000, the Government had primarily sold minority shares in public sector companies. The price realized through the sale of shares, even in blue chip companies like IOC, BPCL, HPCL, GAIL & VSNL was low as the following table indicating Price to Earning Ratios would indicate. On the other hand, the prices realized through strategic disinvestment have been very high.

During the period 1991-2000, the sale of minority shares of public sector undertakings had led to an income of about Rs. 18,000 crore. Most of these during this period were picked-up by financial institutions. Unit Trust of India was one such institution, which had picked up sizeable number of shares. Since, the public perception of public sector companies is that they would not perform well, the prices of shares fell in a number of cases after sale, with the result that UTI lost Rs. 5056 crore over an investment of Rs. 6403 crore made by them.
The deteriorating performance of PSU companies has forced the Central Government to give huge subsidies in the form of equity and loans, guarantees, waivers etc.

Since the CPSUs have not performed well except in companies where Public Sector has a monopoly, the share prices of Public Sector have performed badly. Often, these shares have been termed as non-performing shares in the market leading to huge losses to investors in such shares. With increasing liberalization in the Indian economy the areas of monopolies are fast diminishing. Hence, the disinvest policy of the government should be implemented at a very fast pace. This policy was implemented with vigour during the last few months. This has led to a huge upside in the market for CPSU shares.

While the share price in the year has seen many highs and lows due to the WTC attack on 11.9.01 and Parliament attack on 13.12.01,it may be observed that on 8th Jan., 02 the PSU market cap. Was 17.26% of total BSE market cap. and the index almost the same as on April 2, 2001. However, Feb. 2002 onwards has seen a rise in market cap. Of PSU shares (big disinvestments like VSNL, IBP and HZL which has established Govt.'s earnestness in the process).

Observations:

Between 8th Jan. 2002 to 16th May, 2002, market cap of listed CPSUs shares to total market cap. of BSE has increased from 17.26 to 26.27%
The market cap. of listed CPSUs has increased by 73.5% i.e. from Rs. 96062.63 cr. to Rs. 166671.87 cr. against a 14% increase in total market cap. of BSE listed companies, which have gone up from Rs. 556551.62 cr. to Rs. 634352.55 cr. from 8th Jan. 2002 to 16th May, 2002
PSUs account for 90.76% rise in the market cap. of total BSE listed companies between 8.1.2002 to 16.5.2002.

It is remarkable indeed that the Public Sector shares have almost doubled in value over the last four months and if this performance can be maintained / improved there would be huge benefits to the economy.

A fear is often expressed that the employees would lose if companies were privatised. Recent privatizations have shown that these fears are totally unfounded. Of a total workforce of about 350 million in this country, the public sector employs only about 2 million. During the last ten years, without any privatization or strategic disinvestment, this work force has reduced from 2.3 million to 1.7 million, on account of economic pressures. Privatized companies, shown in the table above, have not retrenched a single person. Some of the companies are now in the process of restructuring and would accept some voluntary retirement applications. These companies are giving VRS to the employees, at scales, which are normally higher than the Government VRS. Shareholders Agreement with private companies normally have a provision that employees interest would be protected by ensuring VRS, which is higher or equal to the Government VRS, if there is a need for restructuring in the number of employees. As has been stated above, such exercises are done during the public sector regime also. It has been reported that the response to VRS offered to employees before disinvestment is sometimes lukewarm as the employees expect a better package after privatisation by the strategic buyer, if and when VRS is offered to them

Very often additional recruitment also takes place in privatised companies and the wages are increased. To give an example, wages have been increased by an average of Rs. 1600 per employee in Modern Food Industries Limited. Within a month after privatization, the company had been referred to BIFR. At the time of privatization everyone knew that based on its past performance, Modern Food was fast approaching BIFR. Hindustan Levers are now taking measures to financially restructure the company and bring it out of BIFR, at their own expense. Had the Modern Food remained a Government Company, the tax payer would have paid for financial restructuring of the company perhaps repeated by another restructuring a couple of years later, again at tax payers expense, as is usual in the public sector. In BALCO, wages had not been increased after 1.4.1999, even though a revision was due. In spite of loss of about Rs. 200 crore due to the strike, an ex-gratia payment of Rs. 5,000/- was paid to all employees and a long term wage agreement for a period of five years entered into by the Management with the employees on 7.10.2001, which guaranteed benefit of 20% of basic pay to each employee, besides increase in a number of allowances.

The privatization policy of the Government of India has shown that tax - payer, the economy and also the employees of CPSUs will gain through privatization.

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