:: Editorial

Disinvesting PSUs boon to investors

Nov.06 : The government’s decision to go in for a two-pronged disinvestment programme will surely add quality and depth to India’s stockmarkets. The Union Cabinet has decided that in already-listed PSUs the government will bring down its shareholding to 90 per cent where it exceeds that figure, and unlisted PSUs that have been  making profits for the past three years will have to get listed and in which the government will unload 10 per cent of its stake. The government hopes to net around Rs 60,000 crores from the entire exercise, and when all these PSU shares come to the market the Bombay Stock Exchange’s market capitalisation could increase by over Rs 3 lakh crores. This is indeed a boon for investors as the free float of good companies in the market is scarce. It will be another few years till all the companies listed on the exchanges bring their public shareholding to the government-mandated level of 25 per cent. Many of the PSUs are quality companies that have been registering profits for investors during the economic slowdown. This move will be doubly beneficial for the PSUs’ efficiency: in addition to being accountable to Parliament, as they are now, they will also come under the scrutiny of the market and of investors.

Having said this, there are two issues to be discussed. One: disappointment that proceeds of this disinvestment will be routed to social sector spending through the National Investment Fund, but with a difference. The entire amount will be used to fund social objectives like schools, hospitals and roads; and not just the income that NIF would have earned from this amount. This may ease the pressure on the government’s burgeoning fiscal deficit, but if debt is not retired with the sale of an asset, then it would essentially mean eating up an asset. The route the government has adopted to fund its social objectives is the easy one — it does not have to do any work, and merely transfers public wealth to some public schemes, of which there is unlikely to be any accounting.

The other important point is that Union home minister P. Chidambaram said very emphatically that disinvestment was being done so that the public gets a shareholding in PSUs. So who is this public? If by public Mr Chidambaram means the aam aadmi, then he will have to think twice. These PSU will have to come out with initial public offers, or follow on offers, and in the whole process of an IPO the retail investor or aam aadmi gets a raw deal. This is specially so in pricing and allotment. It’s a cosy club of people that decides on pricing, which they use to their advantage on listing day to flip and make money. It’s imperative that the government looks into this whole process of IPOs and sees how the process has been hijacked by merchant bankers in collusion with  promoters and certain high net worth individuals. There is no democracy in the whole process. Why should there be multiple classes of shareholders. Why not sell these shares through the exchanges as is done in the secondary market? This would eliminate costs and middlemen, or expensive intermediaries, as the merchant bankers are called. It would also eliminate a lot of mischief that goes on during the IPO process. Sebi has done a lot of good work in eliminating some of the mischief, but a lot remains. So if the government really wants the people of India to be shareholders, it should consider this as an opportunity to set a democratic trend in IPOs. Sebi chief C.B. Bhave, for whom the investor always comes first, could help the government in this process. The government’s IPOs need to be democratic in design and action.