FINE TUNING THE ONGOING INITIATIVES TO BOOST ECONOMIC GROWTH

GENERAL

1. In view of the impact of the pandemic it is imperative to consider some important initiatives of the Govt. with a view to introducing mid course corrections and boost economic growth if any. In this regard, Surya Foundation Think Tank deliberated upon the following issues :

(a) Strengthening Privatisation Initiatives.
(b) Reprioritising National Infrastructure Pipeline (NIP).
2. Various issues, challenges and some recommendations are given in the succeeding paras.

STRENGTHENING PRIVATIZATION
Plans for Disinvestment
3. The highlight in Budget FY22 on Privatization is the announcement to take up in this exercise, two public sector banks and one General Insurance Company. Necessary legislation for privatization of Banks/ Insurance Cos will be completed in FY22. Strategic disinvestment of Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, etc., as well as the big-ticket strategic sale of oil major BPCL (all spillovers from the previous year’s disinvestment targets) and the mega initial public offer of Life Insurance Corporation will also be finalized in FY22. The above would lead to realization of Rs 1.75 Lakh Crores.

4. The FM indicated in the Parliament that going forward as a part of the privatization process, the government objective would be to retain only a handful of PSUs (Four) in the strategic sectors under its ownership and control while those in the non-strategic sectors would be privatized, merged with others or altogether closed. The term “Strategic Sector” will be defined. As per data by Standing Committee of Public Enterprises (SCOPE) compiled in 2018-19, there were 249 PSUs of which 70 had incurred losses totaling Rs 31,635 Crore.

5. FM also stated that an incentive package was being worked out for states also to incentivize the disinvestment of their PSUs. A Special Purpose Vehicle (SPV) in the form of a Company to carry out monetization of idle land with central government departments and PSUs, either by way of direct sale or concession has also been planned.

Parliamentary Committee on Public Undertakings Report 2018-19 (Extracts and Recommendations)

6. Defining Strategic Areas. “There is need for Govt to define what “strategic areas” are that will decide selection for the disinvestment of PSUs as different interpretation were given by NITI Aayog and PSUs, in their submissions”.

7. Need for Autonomy. “The Committee is convinced that in today’s fast-paced business environment, crucial decisions on PSUs remaining long pending in the administrative Ministries/Departments would harm the companies beyond repair. The Committee gathered that most of the CPSUs did not have the desired authority or independence in decision making especially in the matters of recruitment, procurement, or even in devising marketing strategies”.

8. Manpower Issues. “The Committee has observed that unscientific management of the manpower has proved to be one of the reasons for PSUs like IL, MTNL, Air India etc. suffering thin profit margins which ultimately led these companies into perpetual sickness.”

PSU Specific Issues and Challenges in Privatization and Disinvestment (P&D)

9. The IPO for LIC will pose challenges in arriving at reasonably correct evaluation. Global experiences in disinvestment have revealed that selling in tranches rather than a big chunk of equity leads to a more realistic price discovery. In a P& D process, utmost care has to be taken that this does not cause the growth of private sector monopolies.

10. In case of Container Corporation (CONCOR), hitherto it has been functioning as an extended arm of the Indian Railways. It gets benefits in land allotment, their rates and terms of leases. It enjoys a near monopoly situation in rail transport of containers. Sale to a private party with the preferred treatment will lead to a private monopoly. Corrective measures will have to be taken in this regard.

11. Reviving BSNL. This will be a challenging task. BSNL will have to be considerably restructured to a new Avatar – a lean, technology intensive, modernized organization, using its large national back bone of fibre optic connectivity, to serve Govt / PSU communication requirements (mandating prepaid concept), provide special security lines, provide high security network support to National & State Electricity Grids, other strategic Utilities (in the context of hacking of Maharashtra Grid recently). One major task to be entrusted would be to increase rural services penetration right to remote village levels and border areas.

P&D approach and Strategy Related Recommendations

12. The disinvestment process should be based on a “well-crafted strategy” for a longer-term period and not on ad-hoc basis driven by requirements of meeting the immediate fiscal deficits etc. Govt may bring out an approach document in the next budget in this regard.

Need for Focused Organization for Implementation for P&D

13. On the future organizational structure within the government to deal with P&D on an ongoing basis for years ahead, a new Ministry for the purpose might be necessary. Department of Investment and Public Asset Management (DIPAM), the department under the Ministry of Finance, that is currently responsible for disinvestment in PSU’s can be moved to a new Ministry of Public Enterprises and Privatization (MOPP) and converted into a professionally managed Bureau of Privatization (BOP) tasked with the entire implementation exercise. The current Department of Public Enterprises (DPE) under the Ministry of Finance can be merged with DIPAM in the new MOPP. That would make it the singular Ministry responsible for privatization while continuing to oversee common issues of public enterprises. This will bring a balance in decision making between Govt’s immediate needs for resources and long-term interests of the country.

14. Once a PSE is approved for disinvestment, the enterprise should be moved out from the administrative ministry and placed under MOPP, which should work out the enterprise specific programme in detail and with strict timelines. It could entrust the task of carrying this forward professionally and with the requisite confidentiality to the Bureau under it only for the final approval of the deal that includes details of the purchasing party, the terms and conditions of sale, and the price, in consultation with the Finance Ministry, should the Union Cabinet be approached by the Ministry.

15. The Privatization & Disinvestment process would necessarily be different for each PSU. But broadly these could be grouped as under:-

(a) Those sick for long time (out of tune with markets) with run down physical assets and/or having large number of employees and land. These should be taken on priority with their land and assets monetized to pay off the compensation to the staff being laid off, clearing other debts etc.

(b) The other grouping would be PSU’s whose health needs to be’ improved ‘to fully realize their potential values, facing pressures of business cycles, technological relevance etc. The sale of such PSUs with management control is a must where market hyper competition requires quick response from Management lest these again slip into the red (e.g., Air India). The Govt, on a case- by-case basis, may fix the timing and decide on the extent of the equity to be given away which would transfer the management control first.

(c) For the well run and, perhaps, the capital intensive non- strategic PSUs, the Govt need not disinvest its entire equity when control moves to Pvt Sector. At a later opportune time when the stock might fetch more, it could gradually reduce its holding to raise resources etc. UK Govt (under PM Thatcher) attempted a high degree of diffused public ownership, which allowed Govt control for long not withstanding minority stake.

(d) The larger PSUs in critical segments like power, coal, power plants manufacture and other high technology products viz NTPC, Coal India and BHEL if to be retained, must be restructured to make them leaner, high technology focused organizations. Older mining units/thermal plants/ low tech. production lines could be divested after some kind of nursing to private players. The PSUs should use the sale proceeds towards upgrading technologies & modernization.

(e) An alternative approach to dealing with near sick PSU’s may be to adopt the model of dealing with the escalating NPAs of PSU banks for which an Asset reconstruction company (a sort of a bad bank), is being attempted with specialist asset management units to revive the assets. The Govt may consider institution of a similar setup to turnaround problematic PSUs in lieu of the present “business as usual” institutional management structure.

16. While due to constraints imposed by Pandemics, The Govt may use disinvestment proceeds in reducing fiscal deficit, as a long term measures, Govt must reuse substantially the funds derived from sale of Capital assets of PSU’s for reinfusion of capital for growth of healthy PSUs/Revivals. There is a case to create a dedicated non lapsable fund in this regard to be judiciously used by MOPP. Such a ‘Renewal fund’ had been envisaged several years ago but when the disinvestment process did not proceed apace , the idea of the fund got abandoned.

17. The Govt must continue to repose its faith in the Public sector for critical technology developments. The success of ISRO, Atomic Energy Commission, DRDO (when foreign technology was denied to India) are examples where public sector alone can be successfully entrusted with highly capital intensive, “Knowledge intensive” projects, associated with high degree of business risks where Pvt sector may not be venturing.

18. Greater Autonomy of powers to PSUs in decision making is essential (with corresponding accountability) Some of the sickness has arisen due to the delay in decision making in concerned administrative ministries as pointed out by Parliamentary committee on Public undertakings (2018-19). Govt may consider appointing a high-power committee to bring out recommendations in this regard.

REPRIORITIZING NATIONAL INFRASTRUCTURE PIPELINE (NIP) PROJECTS

19. Due to the present pandemics, revenue constraints, need for urgent allocation of funds for Covid-19 combat measures, rising fiscal deficits both in Centre & the States, full scale funding for NIP (111 Lakh crores in 5 year period with 39% central, 40% states and 21% private sector participation) may be difficult at this juncture. There is therefore urgent need for reprioritization of the projects in NIP.

20. Health infra, including vaccination in the context of Covid-19 especially in the rural areas must receive top priority attention, followed by strengthening of Primary health & educational infra, especially in Rural areas (supporting telemedicine interventions & Digital education etc.). Digital connectivity works (for rural areas particularly) should be given top priority, considering benefits it brings to financial inclusiveness etc. There is urgent need with pandemic uncertainties to provide tablets to all school children (at least for poverty and below poverty line children) as a part of school infrastructure.

21. Water infrastructure requires immediate support including planning for 150 BCM storage (out of 300 BCM potential) through large, medium & small storage dams in a 15 years period, in the context of India becoming water stressed by 2050, as per climate experts. The Storage dams with higher potential for green hydro power will help Renewable Energy cause also.

22. Funds for afforestation, which is lagging behind, must be increased to meet India’s commitment to establish a carbon sink of 2 to 2.5 billion tonne carbon sink by 2030 to UNFCC. The 8 pillars of climate change combating initiatives require specific funding instead of depending on general funds.

23. Support to R&D infra, Clean Coal & Carbon emission reduction technologies, carbon capture projects Hydrogen production, Medical/ Pharma research, vaccine infra and other emerging / frontier technologies is vital. Boost to works on providing industrial / Scientific/ Knowledge parks, on plug & play model, will help India quickly attract MNC’s shifting base from China. The Delhi Mumbai and other Industrial Corridors as well as Dr. S.P. Mukherjee RUrban Mission, developing towns with good urban facilities and employment opportunities by setting up of small-scale industries/service centres, at centre of village clusters, must be funded better for quick completion.