The Government Is Richer than It Thinks

Disinvestment has not turned out badly at all for the government. Will we see any more of the 159 profitable central PSUs getting listed any time soon?

If anyone doubts that disinvestment is a good thing, he only has to look at the facts of the past three years. By all accounts, government-owned firms have had a very good run on the stock markets. The shares disinvested by the government, and most of these were at a hefty premium, have appreciated nicely, even when the market as a whole has been volatile. This also makes the state richer. The value of the state’s holding in public sector undertakings (PSUs) such as NTPC, Powergrid Corp, Rural Electrification Corp and Power Finance Corp, where the government has diluted its stake, has gone up nearly three times since, from Rs 80,791 crore to Rs 2,27,181 crore now (as on 9 September 2009), despite the sharp slide in the market from its peak. This is good for state finances and makes a strong case for further disinvestment. Not only does it help the government mop up cash at the time of the public offering, it also gives its asset portfolio a bounce. So, when can we expect some more action? A recent report by research firm Prime Database points out that there are about 159 profitable Central Public Sectors Enterprises (CPSEs), only 45 of which are listed. Many of these are monopolies or market leaders. Given the implicit government support, their shares would be sought after. India can shore up state finances by selling small chunks of shares, say analysts who track investor appetite (Oil India’s IPO was a success and Coal India’s is eagerly awaited).

For long, the Indian state, covetous of the ‘commanding heights’ of the economy, insisted on ownership of businesses to meet social goals, retain market presence in strategic sectors, and exercise influence. But why should only badly managed PSUs be sold? This is not about disposal; the government would keep controlling stakes in these PSUs, and their traded share prices would give us a live market assessment of their performance. This might be why China has listed almost 90 per cent of its companies on Chinese bourses, including China Telecom, Baoshan Iron and Steel and the Industrial and Commercial Bank of China. The result? The Chinese government has $1.5 trillion extra worth of tradeable equity.

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