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Driving back in right lane PDF Print E-mail
Saturday, 21 May 2011 00:00
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The government has earned around a lakh crore rupees through disinvestment since 1991-92, around half of this in just the last three years, but the real buzz was created when Arun Shourie was the minister. It wasn’t just the R33,000 crore he earned; transferring management control of 15 PSUs fetched him R13,000 crore, but more important, it set the PSUs free. It is this the government hopes for by selling off the loss-making Scooters India. How many will be interested in buying the unit which has accumulated losses of R826 crore is an open question, given it has 1,205 employees as well; its wage-to-turnover ratio is a mind-boggling 35%. But it also has 150 acres of land. The company that had the rights for the Lambretta brand discontinued scooter production in 1997 (scooters are the hottest segment in the two-wheeler market right now!) and concentrated on 3-wheelers instead, where it has a 3% market share, thanks to the rapid strides made by almost all private players.

This is where it’s important to see what privatisation does for a PSU. Take Maruti Udyog, the market-leader even before Suzuki was given full control. Thanks to the way the government operates, even with its 50% equity, Suzuki could not bring in the latest engines and Maruti had to stop sales when the new pollution norms came in!; the tall-boy concept was a Suzuki innovation, but Hyundai managed to be first-to-market in India. Once the government exited, at a handsome R5,928 crore, Maruti became an integral part of Suzuki’s global R&D set-up and Suzuki produces more cars in India than it does in Japan. Or take VSNL, which was sold for R1,439 crore (government still has its share in VSNL’s land bank of 773 acres, which is worth R12,000-15,000 crore). At the time it was sold, VSNL’s monopoly over international calls was ending and rates collapsed after that—it’s difficult to say how it would have fared as a PSU, but fellow-telecom major BSNL has made losses of around R7,000 crore in the last two years (MTNL has lost R5,400 crore in this period) with competition hotting up—this would have been even larger had it not been for the earnings from its cash reserves which are down to R5,000 crore as compared to six times this a year ago (the 3G payout also depleted them). Which is why, while announcing the Cabinet decision to sell Scooters India, the government said it would “help arrest further drain of public money and ensure economic growth of the company and its employees”. If the government can summon the courage to go in for more such sales, the impact will be large. Just the spectrum holdings of BSNL and MTNL, even if you demerge the land, will fetch a tidy sum; both have attractive subscriber bases that can also be monetised—right now, both are loss-making and don’t show prospects of improvement. In economic terms, it’s a no-brainer.

 

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