Selling Loss making public sector units smartly…

The Union budget has for the first time made an announcement and set a target for disinvesting loss making units of the government of India. Cynics may argue that nobody will be interested in the same. But that need not necessarily be the case. In the current Union Budget, Jaitley has estimated to raise Rs.41,000/- crore through SUUTI and minority stake divestment. At the same time, he has targeted to raise Rs.28,500/- crore through the strategic sale route. Apart from Balco and Hindustan Zinc, this amount will have to be largely raised through the strategic sale of loss making PSUs. But how will it be done.

Monetise the assets to the extent possible…

If you look at the list of loss making PSUs, the prime among them are blue chip names like Air India, National Fertilizers, Hindustan Cables, Hindustan Photofilms, ITI and HMT among others. Most of these companies are into businesses that the government had no business to be involved in the first place. But, how can these assets be monetized? For starters, most of these companies are sitting on a wealth of real estate property. A proper mechanism is required where the real estate can be insulated and valued separately without encumbrances. There will surely be takers for the same. Companies like Air India have other assets like a fleet of aircraft, parking slots in airports and a wealth of trained personnel. These are assets other domestic and global airlines will surely be interested in. A strategic sale would be a much better option for the government compared to funding the losses year after year.

Exit sectors where government adds little value…

The government should also use this opportunity to hive off companies in non-core sectors. Why the government needs to continue in tractors, watches and telecom equipment is a million dollar question. The answer is the government need not be there. There may be the need of government support in the form of tax breaks, an easy duty structure, loss carry forward etc. But these would be a small cost compared to the investment that the government sinks in year after year. That is really the way to go ahead.

This particular item will surely test the government’s resolve. Apart from innovative structures and synergistic deals, this also calls for dealing with recalcitrant unions. That would be the real test. But the government must bite the bullet. The sooner, the better!

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