FE Editorial : UPA and the D-word

Sun, Oct 18 09:37 AM

The Prime Minister's speech at Scope's excellence awards, a function to recognise performers in and among government-run enterprises, gave an interesting insight into how the UPA government views the role of PSUs. Obviously, in keeping with what seems to be the party line, the PM made no reference to large-scale sell-offs or privatisations. He, however, made interesting points about the listing of PSUs on stock exchanges. Listed PSUs, as the PM pointed out, contribute 24% of the total market capitalisation of the Bombay Stock Exchange. And in terms of market capitalisation, five of the top ten BSE companies are public sector undertakings. The PM obviously used these telling statistics to highlight the relative success of some PSUs. It would be hard to deny that at least some PSUs have done well, particularly those that have had to compete with players from the private sector in India and from companies from abroad. It may also have to do with the fact that being listed on stock markets adds an important dimension to the corporate governance of PSUs.

Once listed on a major stock market, PSUs are compelled to follow best practices in corporate governance, particularly disclosure, which is often a problem in the more non-transparent unlisted PSUs. It would be reasonable to argue that listed PSUs are by and large better performers than PSUs which are not listed and wholly owned by the government. Managements also have the added incentive of looking at stock prices of their company. Arbitrary government intervention will also be less likely once a public sector company becomes publicly listed. The probability of the government presiding over a crash in the stock price of one of its PSUs because of a blatantly bad decision will be much less for fear of a public outcry. Moving forward, for a government that dislikes the disinvestment word, incremental listing of PSUs on stock markets is probably the best way to lower government ownership and increase private shareholder control. Of course, some particularly sick PSUs may need a strategic sale because no one will buy their listed shares. But for the ones that make a profit, listing on the markets will be a uncontroversial way towards privatisation. If a significant amount of shares are eventually offloaded, PSUs will also be vulnerable to takeoevers if they do not perform. That will help keep them on their toes. And if they are always on their toes, then the government will get better value for the shares it does sell. It is a win-win situation. The Prime Minister should proceed with divestment by listing straight away.

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