As far as off-budget funding goes,’tactical disinvestment’ – one of the disinvestment processes – is another location that needs to draw attention because this too presents risk similar to other such methods and would have severe effects for the health of the Central Public Sector Enterprises (CPSEs) and fiscal management. ‘Strategic disinvestment’ implies sale of substantial portion of the federal government shareholding of a CPSE of up to 50 percent, or such greater portion, along with transfer of management control. READ: Budget 2020: Off-budget funding -A riddle wrapped up in an enigma Strategic sale in CPSEs to CPSEs The Central government has currently made strategic disinvestments in 5 CPSEs – HPCL, REC, NPCC, dcil and hscc – the tabs for which were chosen up by other CPSEs like ONGC, PFC, NBCC, WAPCOS, and public-sector consortium of ports, respectively. This produced Rs 52,828.8 crore in disinvestment receipts – as divulged in a Rajya Sabha answer on December 3, 2019 (Starred Question No. 159). How much of this cash was generated through market borrowings – which could constitute off-budget resource mobilisation – is not clear. Further, the Central government offered ‘in-principal’ approval to tactical disinvestment in 5 more CPSEs in November 2019 – three of which would be to other CPSEs – as disclosed by the same Rajya Sabha response. ALSO READ: Mood of the Nation study: 44 % support Modi govt’s privatisation drive; 39 % oppose CPSEs major factors to disinvestment invoices The CAG’s 2017-18 audit report on the Union federal government accounts(No. 2 of 2019, launched in February 2019) states”disinvestment makes up a significant part of capital receipts”of the central federal government. Out of total disinvestment earnings of Rs 88,969 crore, 5 CPSEs – HPCL, NTPC, General Insurance, New India Assurance Company Ltd and Hindustan Aeronautical Ltd – contributed 78.13 percent, or Rs 69,514 crore. Meanwhile, here is the historic data on disinvestment receipts given that 1991-92 when the process started. ALSO READ: What Dalal Street expects from Nirmala Sitharaman’s second Union Budget Why strategic disinvestment is an issue: Case research study of ONGC While the information of tactical disinvestments are scarce, the case of the ONGC is instructional. It acquired HPCL( a CPSE) in January 2018 for Rs 36,915 crore. In doing so, for the very first time in its history, ONGC – a debt-free and cash-rich ‘navaratna’ CPSE – borrowed Rs 24,881 crore, as it had exhausted its cash reserves previously due to getting stakes in bankrupt Gujarat State Petroleum Corporation (GSPC) in 2017 for Rs 7,738 crore, payment of large dividends to the Central government, and Rs 4,022 crore share buyback. The disinvestment proceedings of HPCL (ONGC had actually obtained 51.1 per cent stakes for a total of Rs 36,915 crore) went to the Central federal government’s cat. Now, ONGC is so debt-burdened that it is contemplating selling HPCL off – in less than 2 years. An examination of its annual reports expose its precarious financial condition: Cash reserves have actually crashed from Rs 2,01,246 crore in FY12 to just Rs 5,041 core in FY19, and borrowings soared from Rs 45,000 crore to Rs 2,15,936 crore during the very same period – as portrayed in the following graph.
ALSO READ: Successful divestment of BPCL, CONCOR to lay path for enthusiastic stake sales: Subhash Chandra Garg Bleeding CPSEs: NTPC and PFC The cases of two other CPSEs, NTPC and PFC, are no various. The previous will be selecting up the tab of strategic disinvestment in other CPSEs like NEEPCO and THDCIL, and the latter is currently burdened by market borrowings (off-budget) to fund power projects on behalf of the Central government. These CPSEs have actually also been contributing substantially to the Central federal government’s kitty by method of dividends/surpluses.
The Central federal government has currently made tactical disinvestments in 5 CPSEs – HPCL, REC, NPCC, dcil and hscc – the tabs for which were chosen up by other CPSEs like ONGC, PFC, NBCC, WAPCOS, and public-sector consortium of ports, respectively. The CAG’s 2017-18 audit report on the Union federal government accounts(No. 2 of 2019, launched in February 2019) says”disinvestment makes up a major part of capital invoices”of the main government. It acquired HPCL( a CPSE) in January 2018 for Rs 36,915 crore. The cases of two other CPSEs, NTPC and PFC, are no different. If you are bleeding the CPSEs to finance budget plan – other than dividend which is a various thing – it is damaging the CPSEs permanently.
‘s contributions of Rs 40,659 crore. Permanent damage to CPSEs for short-term gains Economists and policy experts are worried at the state of affairs, particularly at the way the Central government is financing its budget through off-budget borrowings, disinvestment and by draining out cash from the CPSEs. Economic expert and statistician Pronab Sen says: “The question is how you are doing it. If you are bleeding the CPSEs to fund spending plan – other than dividend which is a various thing – it is damaging the CPSEs completely. You can’t kill a goose that lays golden eggs. That would be harming the long-term possibility of the economy for short-term gains.” READ: Air India sale: Amit Shah-led GoM authorizes draft for welcoming quotes Rathin Roy, previous member of Prime Minister’s Economic Advisory Council and director of the New Delhi-based National Institute of Public Finance and Policy (NIPFP), says: “The Government of India’s medium-term issue for the previous 15 years has been that it is assets-rich but income-poor. So, the strategic view of the GOI’s assets would involve earnings generation from those assets and any sale or acquisition of possessions should be keeping that in mind. My view is that the past three governments used possessions sale to make up for the deficiency in income. “The constitution of the Department of Investment and Public Asset Management (DIPAM) was welcome because it acknowledged to adopt property management system. However, I am yet to see evidence of such a point of view being operationalised; disinvestments are still driven mostly by financial pressure.” Concerns were indeed raised when less than a month after the RBI announced transferring Rs 1.76 lakh crore in August 2019 – Rs 1.23 lakh crore as dividend and Rs 52,637 crore as surplus – the Central government revealed a business tax cut of Rs 1.45 lakh crore. This was jarring in view of the reality that industrial production and capability utilisation have actually been falling because of absence of demand in the economy, ruling out possibility of business invests in the short run. The RBI money could surely have been put to better use – to drive need – offered the reality that the GDP development rate had taken a success – falling steadily from 8.1 percent in Q4 of FY18 to 4.5 percent for Q2 FY20 – mostly since of demand anxiety.
ALSO READ: Cabinet clears tactical disinvestment proposal for BHEL, Neelachal Ispat, MMTC, NMDC CPSEs drained of monetary resources The CAG’s 2019 report likewise points out how CPSEs were the significant contributors to the Central federal government’s cat of dividend/surplus income in 2017-18- Rs 76,062, consisting of RBI