In 2014 many of us were optimistic about Narendra Modi’s elevation as PM and were hoping that some economic changes will happen. Yes, somethings happened – like banks recovered huge sums of money from people like Ruia who had gone on record saying “I will not repay”. This was the first time that I saw industrialists selling assets to repay bank loans. Imagine Adag group selling the “BSES” to Adani! Or Mittals paying off some old dues so that they could bid for the Essar steel’s assets!

However, privatisation of the PSU does not seem to be happening – not in a hurry

This took me back to 1983 when I was doing my CA and had the chance to do an oil major’s statutory audit. I had asked the CFO what was the problem with Government owning the company. He said there are 3 problems:

  1. Forcing buying of assets which the government does not want to use its cash – the athletes village in Delhi created for the Asiad was sold at high prices and called a “guest house”
  2. When the PM calls for “ecconomising” the petroleum ministry asks the Oil companies to hire 30 people who actually are paid a salary by the psu, but work for the government.
  3. Expecting the Under Secretary level of person to be able to ask for car(s), drivers, guest house usage in various locations without much notice.
  4. Allotting pumps to ….(he used a unparlimentary word rhyming with pumps!) who are adulteration kings.

These things have not changed, and nor will it change. The minister and the baboo(n)s will never ever let privatisation happen. Namo will make the right noises “less government and more governance” types, but there is no heart to really let go.

Now take PSU banks. Apart from all this you can move cash wherever you want. Obviously some baboo(n)s and the senior executives in banks made a lot of money during demonetisation (thumbing their nose at Namo).

At least my gen (born in the 60s) have no hopes of this gov doing any great privatisation. One big fund manager lamented that the family silver was being sold! He is such a joke – I checked his portfolio, No, he does not own any bit of the family silver.

My take on privatisation is simple. Ask for bids for 52% – the government got a good price for Maruti did it no? Each PSU will have a different approach – Engineers India could be the first experiment with the govt holding 20% and the balance held by its employees and other shareholders. Government interference in a service business is not likely to be much. In companies like Air-India, the assets have to be put in an SPV- assets like landing rights could be attractive and assets like buildings may not be, so different strategies for different assets will have to be made.

Once that is done, sell it for CASH.

What prompted me to write this? Well Vivek Kaul wrote this

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  1. (1) Any action with insignificant impact in the short run, which is ‘not understood’ by majority electors to be a benefit, which is a subject of high criticism by the opposition – is always avoided. eg. the above eg, improving govt hospitals, govt primary education.

    (2) Any action with significant impact in the short run, pleases majority of the electors, ignites sentiments positively, and subject matter least criticism – is always chosen. eg. politicians turning Santa claus when the elections are near.

    By taking an action, (i) who benefits? (ii) when do they benefit? (iii) What is the benefit for the person taking the action? (iv) does it have any photo-op value ?.. Some politicians think and picture themselves as lions and tigers and put these up in their campaign hoardings. Rich & upper middle class do not give a damn (yes including people reading this).. The majority of people who are driven by sentiments, are ’emotional fools’. The benefits do not percolate down to required depth. That is ground reality.
    The law adds fuel to fire by delaying justice. Even police gets frustrated by the loopholes of law and kills a gangster, and everyone knows the truth. Sushant has become media-masala these days. You can imagine the plight of addressing some of the more dull topics like macro-economics and social development.

  2. Well, the govt (FM) wants PSU banks to lend to all sorts of companies ‘forgetting’ the borrower’s past, they want SBI to bail out Yes bank, they want ONGC to ‘buy’ HPCL, they want Air India to fly as national carrier and finally they don’t want to appoint professional board to these PSU banks. Worse still, they want to run RBI as well. So what do you expect?

  3. There are 2 options:
    1. Govt can give up majority ownership in few banks causing privatization like axis bank. They seem difficult path considering criticism from opposition, employees, unions etc. This is much more difficult now with covid crisis.

    2. Low resistance path where they do not hire new employees, keep merging banks every few years, facilitating them to die slowly. Space vacated is slowly being captured by private banks.

    Govt seems to be taking option2 now. Indicates investors should stay away.

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