Disinvestment
is another term for privatisation, an often-controversial topic both inside
and outside government. There is an
increasing need for awareness of the basic issues involved in the privatisation
process and the Department of Disinvestment seeks to answer some of them through
this document.
What is privatisation?
Privatisation
means transferring the control of an enterprise from the government sector
to the private sector. It can be accomplished by sale or lease. It can be
accomplished by the government selling 100% of an enterprise, or selling
51%, or even by selling a minority stake - so long as the private sector
is given full managerial control. The government can raise money by selling
some shares in state enterprises without transferring control to the private
sector -but this is not privatisation as such .
What does privatisation
accomplish?
Privatisation
is the best way to revive and rebuild weakened, public-sector enterprises.
Privatisation:
·
Stops loss-making public sector
units from adding to government debt and draining the government budget
through subsidies;
·
Raises money for government by
sale of public sector units;
·
Depoliticises public sector units,
removing governmental pressures for over-manning and the sub-optimal use
of resources;
·
Gives new owners a strong incentive
to turn failing public sector units into successful businesses;
·
Gives those businesses access to
investment capital that government cannot provide;
·
Raises more money for government
through taxing the privatised public sector units;
· Expands an enterprise
and an industry, in the long run creating more jobs and generating wealth
for the country and its government;
· Provides a better
working environment and benefits to the employees;
· Productivity improves
adding value to the industry and the economy.
How do we know
it works?
Privatisation is nothing new. In the World Development
report, 1991, one comes across an interesting excerpt from a 14th century
Arabic Treatise which mentions: “Commercial activity on the part of the ruler
is harmful to his subjects and ruinous to the tax revenue…(it) crowds out
competitors; dictates prices for materials and products which could lead to
the financial ruin of many businesses.” However, privatisation has gathered
momentum the world over in the last 20 years - with a proven success record
in more than 150 countries. The global wave of privatisation started in the
United Kingdom in 1979: today their privatisation programme has already generated
over $100 billion in revenue from the sale of major state enterprises. And
it has helped customers by providing better and less costly goods and services.
In the past 20 years, globally, more
than one trillion US dollars in government assets have been transferred to the
private sector. Experts worldwide credit privatisation with reducing government
debt and rebuilding both large and small industries, turning them from loss-makers
into profitable, tax-paying enterprises.
In terms of speed and overall achievement,
one of the world's most impressive privatisation programmes must be The Treuhandanstalt,
the German privatisation agency set up specifically to handle the reform of
the East German economy after unification. It succeeded in privatising some
13,600 enterprises over about three years in the early 1990s. This is an impressive
record which shows how much can be done with efficient organisation and political
will.
One reason for the Treuhandanstalt's
speed was the ready supply of qualified West German companies prepared to bid
for their East German counterparts. In that sense conditions for Indian privatisation
are similar, given the size and experience of India's private sector. However
there were also conditions unique to Germany. Many East German enterprises were
so antiquated and run down that the Treuhandanstalt had to pay subsidies to
companies in order that they would agree to take over and rehabilitate the privatised
firms. The entire exercise cost billions of Deutschmarks. Here in India, while
many of our PSUs are inefficient, out-dated and likely to fetch low prices,
they will find private sector buyers willing to rehabilitate them without government
subsidies being required.
Sometimes experts argue over the best
way to privatise, but virtually all of them agree that privatisation works,
and is an economic necessity for most countries.
The most recent worldwide survey sponsored by the World
Bank, by Megginson and Netter in 2001, confirms that:
·
· '…privately owned firms are
more efficient & more profitable than…state owned firms…'
·
· '...divested firms almost always become more efficient,
more profitable, increase their capital investment spending and become financially
healthier.'
Comparisons
between P/E (price-earnings) ratios of state-owned Indian major firms and
privatised major firms from around the world are instructive, demonstrating
that privatised enterprises generally perform better than comparable state
enterprises.
P/E Ratios
of Major Oil Companies
Petronas Gas of Malaysia
11.5
Seoul CG of South Korea 10.2
IOC (India)
4.9
BPCL (India)
5.7
P/E
Ratios of Major Telecoms Firms
Telecom Malaysia
46
British Telecom
43
VSNL (India)
6
Equally
striking are the comparisons between P/E ratios for public versus private
sector firms in India. In the vast
majority of cases the private sector outperforms the public sector. The following
table brings this out quite clearly.
|
Public sector
|
Private sector
|
|
IDBI
|
2.7
|
ICICI
|
7
|
|
GAIL
|
4.4
|
Gujarat
Gas
|
15.8
|
|
BHEL
|
7.5
|
ABB
|
24.3
|
|
IPCL
|
8.6
|
RIL
|
15.1
|
|
IBP
|
15.7
|
Castrol
|
24.2
|
The comparative
valuation in the case of the BALCO deal also brings this out very clearly
as the following table shows.
|
Name of Company
|
PCF
|
PER
|
EV /EBITDA
|
|
NALCO
|
4.3
|
6.6
|
4.2
|
|
HINDALCO
|
8.1
|
9.9
|
6.3
|
|
INDAL
|
6.3
|
10.5
|
8.4
|
|
Mean
|
6.2
|
9.0
|
6.3
|
|
BALCO
(Bid)
|
11.5
|
19.4
|
8.9
|
Where
does privatisation work worldwide?
Privatisation brought the United Kingdom
from near bankruptcy in 1979 to its re-emergence as a world economic leader.
Privatisation brought similar benefits to the vast majority of countries ranging
from Eastern Europe to Africa to South Asia and South America. Fewer than a
dozen countries have avoided privatisation such as Myanmar, North Korea and
Cuba -- countries facing a bleak economic future.
Privatisation works in rich countries like Britain
and Saudi Arabia. It works in poorer countries like Tanzania and Sri Lanka.
It works in the 'North,' in Poland and Germany, and in the 'South' in Malaysia,
Zambia and Bangladesh. It works in so-called 'socialist countries' like China,
and so-called 'capitalist' countries like Singapore. Location or relative
wealth, or literacy, or infrastructure, do not matter. In most countries and
in most sectors privatisation works well, and the performance of privatised
companies improves after sale. Privatisation is clearly a worldwide success-story.
There may have been some failures in some countries due to poor implementation.
But such instances are exceptions to the rule.
What is wrong if things
continue as they are now?
The Central Government,
and many state governments, already face debt crisis, resources are scarce and
PSUs are losing money we cannot afford. Carrying on as inefficiently as before
is simply no longer an option.
Government
cannot continue pumping in more tax-payers' money indefinitely when Indian families
have urgent needs like water, schools, roads and medicine. Experience shows
that the longer one waits before privatising a state enterprise the worse it
gets and the more subsidies it needs. Since 1992-93 the Central Government has
pumped in Rs. 34,104 crores in the name of revival/restructuring of PSUs. And
they remain where they were. Six attempts were made to revive HEC but it still
made a loss of more than Rs.1000 crores in 1999-2000.Similar is the story with
IDPL, HSCL, Jessop, Hindustan Shipyard, MAMC and so on. Tables in Appendix 1
& 2 illustrate this point.
There is no point in throwing good money after bad. This wanton waste of
the tax-payers' money has to stop! Privatisation will end the waste of money
in subsidies and let these companies succeed in the private sector. Then government
can redirect the savings to the sectors and causes that need it most.
Several
PSUs are already sick, and their condition is deteriorating by the day. Out
of a total of 241 PSUs, 116 are loss making, and 87 are already sick. Since
payments are often held up, workers suffer delays in payment and they might
even lose jobs, apart from the demoralisation arising out of sitting idle. Without
privatisation, things can only go from bad to worse and the Government's problems
will increase. Sick PSUs are a sticky problem for our political leadership,
and the sooner we deal with it the better it is.
Moreover, fewer than two percent of India's workforce
is employed by PSUs. This means that more than 98 percent of Indian workers
- and 100 percent of Indian taxpayers and consumers - are penalised by PSU
losses and PSU underperformance. Here, in the world's largest democracy, it
is not correct that so many are made to suffer on behalf of so few.
Why not protect
PSEs from competition?
Protectionism may help
for a limited period, but in the longer term it has broad negative effects on
the economy as a whole - most notably on the consumer. Every time that government
bans an imported good, or puts a tax on an imported good to make it more expensive,
it encourages inefficiency in one sector or another.
If we create special taxes for foreign
sugar, or foreign cloth, or foreign toys, we make Indian consumers pay more,
and make Indian consumers subsidise the inefficiency of domestic companies that
are not working as efficiently as they could. If you try that for one commodity,
you penalise people who consume that commodity. If you try it across all the
commodities made in India, you can be certain that Indian consumers will pay
far too much for inferior goods and the country as a whole will grow poorer
and poorer without the improving effect of competition.
India's industries need to learn to
compete. Since liberalisation accelerated in the 1990s India's finished garment
industries, IT services and other products are appreciated the world over for
quality, efficiency and their competitive prices. Globalisation reforms, such
as those under the aegis of the World Trade Organisation, are designed to lower
foreign tariffs. These were originally designed to protect inefficient producers
in rich countries from what they called 'unfair' Indian competition - in other
words Indian efficiency. So where our productivity is strong, the new global
trade rules will let us conquer foreign markets. Where our productivity is weak,
we need to invest more, work harder, and become more efficient at what we do.
Protectionism will stifle the global competitiveness
of India's industries and threaten our ability to compete with neighbours
such as China. In fact, with the new WTO regime the Government will be severely
restricted in its ability to artificially protect any industry from competition
at the expense of consumers.
Why are our PSUs
in trouble?
India's public sector units suffer problems
for a variety of reasons, and they vary from public sector unit to public sector
unit. But in general:
·
· Many are over-manned. Politicians and civil servants
urged public sector units to hire more people than needed, creating unrealistic
and unsustainable jobs at the expense of the taxpayers;
·
· Many are under-managed. Government is less good than
businessmen at ensuring efficiency, thwarting petty theft, and generally running
a business properly;
·
· Many are under-capitalised. Our cash-poor government
lacks money to buy new equipment and retrain workers, so public sector units
often cannot compete against goods or services provided by private enterprise;
·
· Some were wrongly conceived, badly designed and should
never have been built in the first place;
·
· Some of the PSUs enjoyed a monopoly position and
hence could do relatively well financially without performing efficiently.
But when their monopoly position ends, it would be difficult for them to stand
up to global competition;
·
· Slow decision making processes;
·
· Very little accountability at almost all levels.
No sense of belonging;
·
· Low motivation amongst managers and workers chiefly
due to poor incentives, bureaucratically slow promotion schedules, little
reward for hard work and productivity, and delayed punishments for lapse and
poor productivity.
Will privatisation
make PSUs profitable?
Almost always, yes. When government
privatises, it scrutinises prospective buyers to make sure that they have the
money and the skills to run the business successfully. Government is more interested
in seeing a public sector unit survive and grow, than in the amount of money
paid by the buyers. Government wants to ensure that well-financed buyers have
the skill, financing and incentives to make a public sector unit grow. So for
the vast number of public sector units, here and around the world, privatisation
has led to increased economic strength. In the rare cases where a public sector
unit had fundamental design flaws, new owners can often use the public sector
unit's resources to shift into a new, different and profitable business.
And in the even rarer cases where privatised enterprises
fail, the government at least achieved the objective of stopping costly subsidies
and slowing the growth of national debt.
Where has privatisation
worked in India?
While India is in the initial stages
of privatisation, there are already some significant successes.
The Central Government has privatised
three PSUs since January 2000, and already these firms are benefiting from increased
investment capital, new incentives for productivity and private sector management
systems.
Many of India’s
states have successfully privatised their own PSEs. These range from power-sector
divestitures to manufacturing plants, mines and automobile factories, to
smaller concerns like spinning mills and agricultural projects.
Where these enterprises were loss-making,
the risks have been shouldered by private investors, saving governments
from mounting liabilities that they can no longer afford. Even where PSEs
were profit-making, privatisation has opened the doors to investment and
potential expansion that would never have been possible under government
ownership.
Where has it worked for the Central Government?
India’s Central
Government has privatised three firms since January 2000:
·
Lagan Jute Machinery Company Limited
(LJMC), a Calcutta-based manufacturer of jute machinery. A former private-sector
company nationalised in 1977, as a public-sector enterprise LJMC employed
400 workers in the only Indian company supplying jute machinery to West
Bengal’s jute industry employing more than ten lakh workers. The company
made losses beginning in 1996, and in 1997 a 74% stake was sold to a strategic
partner from West Bengal. In nine months as a privatised company it made
40 lakhs profit, and production went up from one or two machines per month
to five or six per month. No workers have been retrenched, and retirees
are now being replaced with higher qualified technicians;
·
Modern Food Industries (India)
Limited (MFIL), a bakery spread over 13 locations in India, employing more
than 2000 people directly and several thousand more associated as franchisees
and retailers. Prior to last year, MFIL generated losses and sales were
steadily declining. In January 2000, 74% was transferred to Hindustan-Lever,
a company with track record of more than 20 acquisitions and mergers in
India. By December 2000, new products were introduced, sales almost doubled
and no workers were retrenched;
·
Bharat Aluminium Company Ltd (BALCO),
based at Korba in Chattisgarh, is a fully-integrated aluminium producing
company with its own mines, refinery, smelter, power-plant and downstream
fabrication facilities. It employs around 7000 people. Due to its 1960s-era
technology, profits began to decline coupled with increasing production
costs and a shortage of investment capital. It was privatised in March 2001,
with a 51% stake sold to Sterlite Industries. No workers were retrenched
and VRS scheme has been kept open as requested by the trade unions. The
new owner recently announced major expansion plans which will generate additional
jobs.
In each of these three cases,
the companies are benefiting from investment capital that government could
never have afforded. In each case employment has remained consistent or
improved. In two cases, loss-making tax-eaters have become profit-making
tax-payers. In the third case, BALCO, a profit-maker looks poised to become
more efficient, more productive and more profitable for owners and government
alike.
Where has it worked in India’s states?
Short of cash and
eager to promote economic growth, a significant number of Indian States
are turning to privatisation, including Orissa, Andhra Pradesh, Madhya Pradesh,
Gujarat, Uttar Pradesh, West Bengal, and Maharashtra. Elsewhere, including
the North-Eastern States, PSE units have been targeted for future disinvestment.
Some already successful examples include:
·
Power-sector privatisation in Orissa,
(AES and BSES);
·
Automotive manufacturing in Andhra
Pradesh (Mahindra-Mahindra Ltd);
·
13 electronic units (of Webel Ltd) in West Bengal;
·
A profitable charge-chrome factory
in Orissa (to Tata);
·
Two corporations in Madhya Pradesh
in the telecom sector ?(NITEL sold to RPG, and part of OPTEL to Fujitsu);
·
Major lift-irrigation schemes in
Andhra Pradesh privatised to farmers;
·
Allwyn Refrigerators in Andhra
Pradesh (sold to Voltas);
·
Mangalore Chemicals & Fertilisers
in Karnataka (sold to UB Group);
·
Vikrant Tyres, in Karnataka (sold
to Shriram Group);
·
Tamil Nadu Newsprint & Papers
Ltd, in Tamil Nadu;
Many state governments
have been forced to close and liquidate loss-making PSEs, so any privatisation
that avoids closure is a success in itself. The total of 116 loss-making
PSEs have saddled our Central Government with an accumulated loss amounting
to Rs.52,551 crores. The same has happened to cash-poor state governments:
Andhra Pradesh’s PSEs have added Rs.1894 crores to state debt; Rs.2314 crores
in Assam, Rs.1044 crores in Orissa, Rs 2913 crores in Uttar Pradesh, and
Rs.3382 crores in West Bengal. So privatisation cuts government losses and
avoids closing down loss-making enterprises, averting a 100% loss of jobs
and productivity.
Secondly, besides
transferring losses, costs and risks to private investors, privatisation
provides plenty of success stories where investment and private-sector management
give workers, unions, managers and owners the means and the motivation to
cooperate and succeed.
In AP the former
Mahindra-Nissan LC vehicle factory in Zahirabad was privatised in the 1990s,
becoming Mahindra-Mahindra. Under government management it lost money and
only produced four or five vehicles per day. After privatisation it now
produces more than 50 vehicles a day, and its turnover has increased from
Rs 60 crores per year before privatisation to more than Rs 240 crores now.
Government did not have the resources to invest enough to let the company
grow – only the private sector could do that.
At Mahindra-Mahindra salaries
have increased by 150%, and workers are given training to keep upgrading
their skills. Bonuses are commonplace and particularly hard-working and
capable workers are sometimes given two promotions at once – there are
no government-style waiting periods because the private sector bases its
promotions on efficiency. Unions, management and workers collaborate closely,
because they each know that more efficiency equals higher profits, allowing
the company to pay more and provide better conditions for its workforce.
Privatisation means cooperation, and everyone shares in the improvements
that they make together.
Is private ownership
better than government ownership?
The private sector
cannot – and should not -- replace government in all cases. Government will
always have a crucial role to play, especially in public utilities where
it must serve as referee regulating prices and ensuring quality service
and contract compliance.
But in many cases,
government can no longer afford to provide the services and build the infrastructure
than modern India demands. There the private sector has the money, the expertise
and the managerial motivation that government lacks. There India needs its
private-sector partners to help get the job done. There we need privatisation.
Where there are
monopolies, like utilities, government involvement is essential. Government
activism is less required in non-core sectors where intense private-sector
competition already serves consumers well, making government participation
less necessary – sectors like restaurants, hotels, garment manufacturers,
etc. There India’s thriving market economy does more to empower consumers
than government can ever hope to accomplish. And why should Indian taxpayers
subsidise less-efficient, government-owned hotels, for example, when the
private sector does it so well already?
Companies like
Air India are prime candidates for disinvestment. While AI provides good,
safe service, its fleet is old and neither Air India nor the government
can afford to replace the necessary aircraft. Only private investors have
the money to do the job properly. So if we fail to disinvest Air India,
we condemn a responsible, hard-working airline to a slow, lingering death,
strangled by competition from 52 international airlines operating in India, and hand over
to such airlines more Indian traffic. We also force safety-minded AI technicians
to struggle with older and older planes, effectively making them take risks
with their passengers and crews or ground unsafe aircraft and miss scheduled
flights. That is unfair to Air India professionals and to their customers
alike.
Our national carrier
needs to be a source of national pride, and that is more important than
whether the private sector or the public sector controls the largest share.
In the mid 1980s the UK’s once-famous British Airways had become a national
embarrassment with poor customer service, bad scheduling and an ageing fleet
of planes. It was disinvested and returned to its former position as one
of the world’s foremost airlines. Now it is a brand name that promotes British
services and products far beyond the air transport sector. A disinvested
and improved Air India can do the same, enhancing India’s prestige at home
and abroad.
Across the board, our profitable
PSEs should be the first targets for disinvestment rather than the last.
After all, if they can turn even a modest profit suffering from government
mismanagement and chronic under-investment, think how profitable they
could become in private sector hands. That would mean more taxes to support
government, and more jobs as the businesses expanded. Just because a PSE
looks healthy does not mean that it cannot grow even bigger, healthier
and more profitable.
How does privatisation
change enterprises?
Ultimately, privatisation
gives new life to an ailing public sector enterprise, or allows an already
profitable PSE to become even faster, bigger and stronger. But initially,
privatisation tackles three major problems of PSEs -- incentives, priorities
and access.
·
Few government employees worry
about economising when they spend government money, but everyone worries
about spending his or her own private money. So private owners and their
employees have a stronger incentive
to make their own enterprise succeed;
·
Civil servants’ top concerns are,
working according to the orders of the elected leaders, avoiding disagreements
with the unions and other stake holders, and other concerns which are paramount
in government. Add to that office of the Comptroller and Auditor General
of India and Central Vigilance Commission and their observations/orders/dictates,
- thus trying to swim, tied hand and foot! But these are not the main priorities
of business, which are cost-efficiency, competition, and satisfying the
customers. So, compared to private businesses, public sector units often
suffer from interference or neglect. For private owners, the economic success
of their enterprise is their top priority;
How will privatisation
improve our national economy?
Privatisation can
make poor economies richer, increasing development far beyond the immediate
sectors being privatised. Basically,
·
It reduces the economically-crippling
government debt;
·
It turns loss-making, tax-eating
public sector units into profitable, tax-paying businesses, giving government
more money to spend on infrastructure, schools and clinics, etc.;
·
It provides goods and services
more efficiently than under government management, generally resulting in
better service and lower prices to consumers;
·
It expands the scope of services
with its access to investment capital, so that electricity, telecommunications
and other necessities are available to more people;
·
It makes better-trained young employees,
building up a national talent-pool which will help attract more investment
to India in many new and different sectors;
·
It often spreads share-ownership,
letting more and more ordinary families share in corporate profits and build
their own wealth;
·
It convinces potential investors
that India is a good place in which to invest their money, creating newer
and bigger industries and more jobs.
Can government reform PSEs without privatisation?
Sometimes people
say that PSEs merely need more government willpower, and that refinancing
or restructuring plans can make under-performers efficient. Unfortunately
for them, all the evidence suggests that changing ownership is what makes
privatisation work.
In the last 9 years
about Rs 34,000 crores have been spent on reviving 23 firms, and not one
firm has revived. Why? It has to do with ownership and the incentives created
by ownership. Ultimately, you care about your property and so you take care
of it, while government property is often either neglected or run on political
concerns rather than serving consumers efficiently. Private ownership is
the most important step.
While some people
put their hopes in restructuring, all these steps are meant to be taken
by governments which have already proven themselves incapable of running
businesses well. And most restructuring schemes are reversible or avoidable
under political and bureaucratic pressures. So they almost always fail.
Over 50 years, all over the world,
governments have tried everything from incentives to bribes to threats
to have better public sector governance and nothing worked. They tried
communism, fascism, command economies, mixed economies and everything
else to successfully run business. Government cannot run businesses in
any political system as effectively as the private sector does, especially
in the emerging post WTO global and highly competitive scenario. So it
is asking too much of any government to succeed where the rest of the
world has failed.
But aren’t economic realities
different in India?
Political realities
may differ from place to place unless voters say otherwise, but economic
reality is surprisingly consistent everywhere. In India, governments have
tried to rescue ailing PSEs by a variety of strategies including: conversions
of losses in interest free loans or equity; moratoriums of payment of all
loans; interest holidays; tax holidays; debt write-offs; interest write-offs;
new loans; management performance contracts, mergers and organisational
restructuring; subsidies (direct and hidden); free power, etc. They did
not work.
For example, attempts
were made to rehabilitate Mining and Allied Machinery Corporation (1973,
1976, 1980, 1986 etc) and over Rs 134 crores of liabilities were waived
or fresh funds were infused. By
mid-1999, its accumulated losses stood at Rs 897 crores and rising. Efforts
to rehabilitate Hindustan Steel Works Construction Ltd. between 1997-99
cost Rs.975 crores in waivers and new fund infusions. By end of the exercise its accumulated losses stood at Rs 1383 crores.
Very often, restructuring
plans are half-hearted, and there is never a final decision on to how much
restructuring is actually needed or when attempts should be stopped.
The pattern is
the same throughout the public sector in India. Restructuring is expensive and it hasn’t worked. In implementing India’s privatisation programme,
we realise that new owners are the best people to consider major restructuring
initiatives such as technology changes, capital investment and major purchases.
Could better labour relations
save our PSEs?
The problem of
poor performance is not due to poor relations between workers and managers,
though there are often disputes in public sector units.
The problem is
a lack of both proper incentives and access to investment capital. Government
does not have the crores needed to turn around the ailing public sector
units – and workers and managers certainly do not have that volume of money.
And public sector workers and managers lack the needed incentives to make
themselves more efficient. When a public sector unit loses money it is never
a worker’s problem, never a manager’s problem, only ‘the government’s problem.’
But when an investor
has put his savings into a privatised company, he has every reason to make
it succeed, even if he has to invest more money bringing in better machines
and retraining his employees. Private sector managers have a real incentive
to build strong, productive and cooperative relationships with workers and
unions – because all those groups stand to benefit from increased efficiency
and profitability.
Can we sell PSEs
to workers?
Worker buy-outs
generally fail. First of all, workers rarely own or can borrow sufficient
money to buy the enterprise, much less to replace antiquated machinery.
And they tend to be inexperienced in those areas in which businessmen specialise
– borrowing money, issuing shares, investing in new equipment and marketing
their products. Entrepreneurship is an unusual and demanding skill, and
most people do not have that skill or experience. So turning a company over
to its workforce is often the cruellest strategy, because then the company
dies a slow, lingering death as workers struggle to do something beyond
their capabilities.
Does India need
more privatisation?
Yes.
As mentioned earlier, the Central Government owns 241 PSUs, which
have accumulated losses of Rs.52,551 crores
– losses that India can no longer afford.
Moreover,
if you consider Indian citizens as ‘shareholders’ in India’s Central Government,
they are getting a very poor return on their ‘investment.’ Private sector
companies tend to earn an average of
15-20 percent on the value of their enterprise. Meanwhile, government’s
PSEs only earn 5-7%, which is less than what government would have earned
had it put the equivalent capital into a savings account in a bank.
If you compare
performance including tax burdens, government’s ‘shareholders’ get an even
worse deal. Indian citizens need public services and public services need
taxes – privatisation will turn loss-makers and under-performers into tax-paying
companies that bear their fair share of Indian social responsibilities.
Which PSUs should be privatised?
Some 58 Central
Government PSUs are scheduled for privatisation, and each operates in a
sector where there are already successful private sector firms. Why should
government spend its scarce money on goods and services already provided
by the private sector?
·
Why should your tax-money be taken
away from you, and invested in NALCO when similar, private companies such
as Hindalco are active in the aluminium sector and pay taxes to the Government?
·
Why should government-owned finance
companies such as SBI Caps and UTI continue to generate P/E ratios of 6
and 5 when their competitors in the private sector such as HDFC generate
a ratio of 30?
·
Why should a government-owned gas
company like GAIL generate P/E ratios of 4.4 when private sector operators
such as Gujarat Gas consistently have P/E ratios of 15?
Our government
should stop trying to compete with the private sector. Let our businessmen
and businesswomen excel at providing goods and services, and let government
focus its attentions on governing, regulating monopolies and increasing
competition.
Aren’t PSEs worth subsidising
for their social objectives alone?
First, where the
private sector already does a job as good or better than government can,
there is no reason for taxpayers to subsidise PSEs. Then, where there is
a government monopoly competition can often be introduced. An example is
telecoms, where only a few years ago it seemed like a monopoly and now new
technologies allow for competing mobile telephone providers, Internet providers,
long-distance services, etc., and even basic telephony.
Very few PSE objectives
are not and cannot be provided better and cheaper by the private sector.
Finally there are only a few cases of natural monopolies, such as the provision
of piped water. There government can still create elements of competition,
such as parallel competition where the track record of one regional private
provider is compared to another in a neighbouring region. But in cases of
natural monopolies there is always a need for a strong government regulatory
body.
But don’t private
companies sometimes lose money?
Yes, but not often
and rarely for long. More than half of all PSEs are loss-makers – hardly
any private companies lose money for long. And when private companies do
lose money, private investors bear the burden, not taxpayers. Hoping to
avoid losses, private owners have a real incentive to do everything possible
to achieve success, while in government-owned enterprises losses pile up
year by year.
Economists tell us that profit
is the reward for risk, so in hope of profit investors are prepared to
risk their savings and their time and effort. Usually that is incentive
enough to make sure that they succeed. But if they fail, government and
taxpayers do not suffer. Today, when PSEs lose money, taxpayers ultimately
pay the bill – year after year.
Why privatise profitable
PSUs?
If a PSU can suffer
from all the mis-incentives, under-capitalisation and other problems caused
by government ownership, and still make a small profit, once all those impediments
are removed it will perform even better than before.
And a profitable
PSU is more attractive to potential investors than a sick unit. Investors
look at a profitable PSU and can immediately see ways to make it work even
better than before, and often to increase production while lowering costs.
That benefits government by bringing in money, and it benefits consumers
as the company grows even more efficient than before.
Privatisation works
for profit-making and loss-making public sector units alike. Governments
privatise profit-making public sector units for three reasons:
·
Governments get money from the
sale of the public sector unit that they can better use elsewhere, retiring
debt or building infrastructure or in the social sector;
·
Profit-making public sector units,
once privatised, tend to grow even bigger with increased access to investment
and skills. This increases employment and boosts tax revenues for government;
·
Growing larger and more efficient,
the privatised enterprise can often provide goods and services at even lower
costs than before.
Does privatisation
create or destroy jobs?
Look at the Central
Government’s first three privatisations – in each case employment remained
secure or is scheduled to increase. There have been no jobs lost so far
in these three privatised PSUs whereas,
without privatisation, PSU employment has come down from 2.3 million to
1.7 million, over a decade.
International experts
have studied privatisation around the world and in the vast majority of
cases employment increased – not decreased. This is not hard to understand
– think how long you wait for a new phone line or a new electrical connection.
And think how many of India’s 200 million families have the same problems.
India has great demand for good services at affordable prices, so there
is plenty of room for industrial expansion and that will require competent,
hard-working competitive people.
Sometimes, when
public sector units are dramatically over-staffed, there is a short-term
reduction in employment. That is only natural, since the enterprise needs
to become efficient and profitable before it can start growing. But private-sector
owners have invested their own money in their enterprise, and they have
strong incentives to make it grow.
Are we privatising
under pressure from foreign institutions?
The foreign ‘hand’
is not a new refrain from groups opposed to the development of India. There
is no reason whatsoever for any foreign institution to prescribe privatisations
for us. The decision is entirely ours, and we need to adjudge the vast long-term
benefits from privatisation and decide prudently.
Privatisation has worked so well, in so many countries, that we would
be foolish not to participate in this highly successful economic strategy.
It has worked in Africa and is working in South Asia and India is lagging
behind countries such as Sri Lanka and Malaysia. It is time to catch up
or be left behind.
Will privatisation
mean selling Indian industries to foreigners?
So far, in the
three Central Government privatisation, all three strategic investors are
Indian firms. Even so, there is no need for worry. When a foreigner invests
in India, his company comes under Indian laws, made by the Indian government,
elected by Indian voters. He employs Indian workers and pays taxes to the
Government of India. He brings new
investment and new technology to India to the benefit of the economy as
a whole.
He cannot, even
physically, uproot a factory or a hotel or a water pipeline and haul it
overseas. When an investor selects a foreign location as a home for his
money, he embarks on a lifelong partnership which benefits both himself
and the place in which he invests. That is why we need to make India attractive
to potential investors. They are our partners in the growth of our economy.
In the rest of
the world, governments compete fiercely for limited foreign investment. The same is true in India as state governments
fight for investment. The long running
rivalry between Karnataka and AP to attract international IT firms is a
good example of this. But India
as a whole continues to lose out to competing economies like China which
has received well over 10 times the foreign direct investment of India,
every year and over the last decade.
Won’t foreigners
take our jobs?
No. Even if a public
sector unit is sold to foreign investors, they often temporarily bring in
a handful of technical experts to help revitalise that industry. And at
the same time they train local people to replace those foreign experts as
soon as possible. This makes economic sense for the owners, since it is
less costly to hire a locally-based expert than to bring one in from abroad.
Since India is renowned for highly-skilled, competitively-priced labour,
foreign investors are more likely to move Indian personnel abroad than to
bring expensive foreign labour here.
And when very large
companies invest in India, Indian employees move up the corporate ladder
and find that their skills are needed in other countries too. Take one look
at the salaries commanded by top Indian IT experts in California – foreign
workers have more reason to be scared of us than we have to be scared of
them!
Can we protect
consumers from capitalists?
Of course! Government
has a very real responsibility to act as a referee, protecting both the
consumer and the investor, especially regarding utilities.
Generally, competition
removes most of the need for consumer protection. Tens of thousands of people
sell shoes or paan or biscuits,
so if we don’t like one product we can shift to another. In these cases,
the government has labour laws and tax laws and food inspectors, all of
which are important. But mostly, every time we spend a rupee we vote in
an economic election, and the companies that please us most tend to win.
It is different with utilities.
We can hardly have ten competing electrical lines and ten sets of water-pipes
connected to every house and office. So here, in particular, government
needs to act as a referee. Government needs to protect the utility’s consumer
from unwarranted price increases, and to make sure that the investor uses
some of his profits to expand services as promised in his contract. But
government also needs to protect the investor, ensuring that the government
fulfils its own side of the bargain. Everywhere in the world governments
that have privatised utilities make sure that this job is undertaken by
a special regulatory office with the full power and authority to protect
consumers and investors alike.
What is government’s
role after privatisation?
In the case of
utilities, government remains involved forever, with its regulator ensuring
fair-play for both consumers and investors.
In the case of
other public sector units, after privatisation they are governed by the
same state and national laws and regulations affecting similar businesses
throughout India. So the Department of Disinvestment’s responsibilities
end after a public sector unit is privatised, but once the public sector
unit becomes a private company, it operates under the same labour laws,
tax laws, environmental regulations, etc., as any other private firm.
How does the privatisation procedure ensure transparency?
Transparency is
crucial to the success of our programme and the Central Government uses
a variety of internationally-accepted practices to ensure that all transactions
are visibly and obviously transparent.
The Government
of India has what experts agree is the most straightforward and transparent
disinvestment process in the world. Once government has identified PSEs
to be divested, a top-echelon international firm is retained to handle the
process in full. These include the world’s foremost firms specialising in
accountancy, finance and more importantly disinvestments. We recognise that
specialist advisers have a clear role to play in building best practice
into India’s programme and we have not hesitated to call on the growing
body of international experts to advise us.
Investment banks, consulting firms, accountants and lawyers have
and will continue to be used as advisers on this important programme. This
keeps the political process far removed from important practical concerns
such as short-listing bidders most capable of making the PSE grow, contract
details which may vary between different bidders, and of course getting
the best price. Once these matters are settled, of course government reviews
the process and decides whether to approve the transaction – a necessary
part of any democratic system. But by keeping government at arms’ length,
investors and voters can be assured that each disinvestment is conducted
in a purely businesslike manner.
Public awareness
activities are in place, and others are being designed, to keep people informed
about each stage of the privatisation process for each PSE to be privatised;
How do we know
what a public sector unit is worth?
A company is ultimately
worth what people are willing to pay for it.
Valuation is the process of estimating this. However the exercise
of valuation is of paramount importance because it establishes a market
price range for the enterprise.
It is also a relative
concept. Buyers may value a company
or a set of assets differently, and bid more or less money accordingly because
they see different uses for the company or they have different expectations
of what that company can achieve.
Valuation based
on market principles are essential to stifle criticisms that the state is
not receiving a fair price and to ensure sufficient investor interest. In India we primarily use discounted cash flow projections of future
earnings and comparisons of similar firm’s market prices (when sold through
trade or negotiated sales) or stock market valuations if publicly traded.
Measures of replacement
value or book value, while informative, are not directly taken as measures
of market value. Book value tends
to understate real value because it is based on historical cost and replacement
value may overstate value because firms are often sold at below replacement
cost. We nevertheless examine book
value and replacement value to assist in reaching a range of probable values
to assist us in estimating the market value.
How does government ensure
that it gets the right price for assets it is selling?
Local and international
experts are called in to evaluate every PSE scheduled for disinvestment.
Each of these firms has years or even decades of experience in the appropriate
sector, ensuring that we get the best evaluation estimates available. However
any expert opinion is only an estimate – whether you are selling a car or
an entire company, what you are offered by a potential buyer is only as
much as he or she is willing to pay. So sometimes the experts are wrong.
Most PSEs have
antiquated machinery and many suffer from old fashioned designs that are
not very efficient – so a bidder will need to assess how much money he will
need to make that enterprise modern and effective. Different bidders may
have different ideas of how much is needed, and that will affect what price
they are willing to pay. Also many PSEs had monopolies or semi-monopolies
on selling their goods to the public, and those sorts of economic protectionism
will stop as India joins the global economy through the World Trade Organisation
(WTO). Of course globalisation means that the whole range of Indian manufacturers
can export to foreign countries without restriction – a great benefit for
Indian industry. But it can mean that a single PSE may need even more upgrading
in order to compete with foreign firms, and that may also affect the price
that a bidder is willing to pay. So evaluations are estimates and nothing
more. Ultimately, the value of a PSE is only what bidders are willing to
offer.
Fortunately, in
most disinvestments, there is little variation between the various prices
offered since businessmen are experts in evaluating investment opportunities.
Equally fortunately, expert evaluations are rarely at great variance with
the bids received.
Are some PSUs
beyond rescue?
Undoubtedly so,
but fortunately they are rare. But since government is never very effective
in running businesses, it takes businessmen to determine when a public sector
unit is unable to survive. This is ascertained in two ways. First, it can
be discovered when the Government brings in private sector experts to assess
and evaluate the public sector unit. Second it can be determined in the
bidding process. If, for example, all competent bidders want to deploy the
public sector unit’s assets in another type of business activity, it would
be fairly clear that the public sector unit has problems which cannot be
overcome. In that case, India’s economy benefits by letting new owners use
the assets to start a different but more viable kind of business. This is
a better outcome for India than continuing to pump money into a hopeless
case, or preventing the assets being used productively.
Isn’t privatisation
painful?
Life without privatisation
is becoming even more painful than change. The economic health of India
is today living on borrowed time. Some 70% of our tax revenue goes towards
repayment of interest on past debts. Under these circumstances, loss-making
or in some cases inoperative PSEs are bleeding the nation. Every year Rs
600 crores is spent on paying the salaries of employees of National Textile
Mills, a PSE with more than 100 closed units. The workers continue to be
paid without doing any work, which is a painful proposition for any self-respecting
individual.
It is well known
that from the moment we are born almost all change is difficult. Nobody
really enjoys change. And we would be misleading if we said that privatisation
is easy. It is not. Workers may find it initially uneasy, facing new owners
and new ways of working together. Changing the habits of a lifetime always
entails some uncertainty and discomfort. But once embarked upon it is usually
less difficult than was feared.
But these changes
are necessary in order for our economy to grow.
Government is very
concerned to protect those who are affected by these necessary changes,
and wants to make the transition process as smooth as possible for everyone.
So it offers the most generous VRS scheme affordable, and world experts
credit India with designing the best retraining programmes for the unfortunate
few who need new skills for a new career in the private sector. Building
a strong new economy is not going to be easy, and government is determined
to help at every step. The results will be worth the effort.
Does privatisation make governments unpopular?
Temporarily
perhaps, but speaking purely in political terms, whether leaders choose
to pursue privatisation depends on how long they hope to remain in government.
In the short run all change is difficult, and all change is vilified by
parties in opposition. In the middle to longer run, it is often wise not
to let economic problems get out of hand since government will always pay
a high price for presiding over disaster. And today, Indian government budgets
are stretched to the breaking point while PSEs continue to generate losses.
Something needs to be done and swiftly.
But
there are political rewards for showing leadership. In Sri Lanka, government
passed its privatisation programme when it only had a single-seat majority.
And since then its privatisation programmes have become economically successful
and popular as well – Air Lanka, now privatised, has improved the quality
of service dramatically. Sri Lankan lawmakers believed that the short-term
political risk was worth the mid-term economic rewards – and they were right.
In
the UK, only after the Labour Party endorsed privatisation and market-economic
reforms did they manage to return to power after nearly 20 years in opposition.
Leading up to Labour’s landslide victory in 1999, they advocated a number
of important privatisations which helped convince the voting public that
they were economically mature enough to lead the country.
How can leaders promote privatisation?
In
both Sri Lanka and the UK (and elsewhere) successful privatisation programmes
were never undertaken piecemeal. They were never presented as ‘one-off’
divestitures designed to solve a single problem with a single PSE. Instead
privatisation was presented as a thorough and consistent process guaranteeing
economic growth. This is important for several reasons, chiefly that if
each privatisation appears to be a unique remedy then every subsequent privatisation
meets consistently strong opposition. Win the overall argument and each
divestiture becomes easier. This requires a consistent, strong and relentless
public information campaign.
Legislators
first need to understand privatisation well enough to defend it before any
audience. And they not only need to inform their constituents – they also
need to take into account the needs and attitudes of various stakeholders
within each legislative constituency. Businessmen have different concerns
than PSE workers, and consumers have different concerns altogether. A thorough
information campaign needs to be carefully designed, but the first step
is for every pro-privatisation leader – in government, politics, business
and media – to become well-informed and articulate proponents of the benefits
of privatisation.
Are there no security risks in selling PSEs like Air India or Indian Airlines or VSNL to the private
sector?
Countries like
Sri Lanka and the UK face considerable internal security threats, yet they
have divested their airlines successfully and safely. Divesting Air India
will be no different.
First, as major
shareholders, the Indian Government will remain in prominent places on the
Air India corporate board, participating in all key decisions and privy
to information at every level of AI’s operations. Secondly, all over the
world, numerous government agencies are intimately involved at every aspect
of airline operations from a diplomatic level affecting air traffic down
to customs and excise responsibilities, safety issues, and security for
cargo and passengers. So, even after Air India is divested, the Indian Government
will still be working hard to protect the aircraft, the crew, the passengers,
the cargo and – of course – the national security of our country. Moreover,
in the agreements, GOI ensures that no person who is a threat to our security
can take control of the Company or be selected as the strategic partner
that is buying Air India. The same applies to Indian Airlines and VSNL as
well.
What
is the guarantee that the private sector would not quietly strip the company
of its assets and then quit, leaving a worse mess for the government to
handle?
First, government
only considers bids from reputable bidders with plenty of experience in
the appropriate sector. A big company with a long track-record of expertise
in, say, foodstuffs or metallurgy is unlikely to descend to asset-stripping.
Secondly, a company is almost always worth much more than its assets alone.
Its position in the market, its customer base, its reputation for quality,
the competency of its workforce and many other matters add to its overall
value far beyond the cost of the machinery or the land on which it sits.
So buyers often pay more than the asset value of the PSE being divested.
In that case, a buyer would be crazy to asset-strip a company for which
he paid more than the assets were worth. Nobody wants to kill the goose
laying golden eggs.
Thirdly, when companies
are invited to bid for a PSE, an important part of their bid is their business
plan. This maps out what changes they plan to make over coming years, and
demonstrates where they will find the expertise and the money to get the
job done. A good business plan is actually more important than the sale
price because government wants to be certain that these PSEs will grow and
prosper, creating more jobs, paying more taxes, and providing more and better
goods and services to the public. As part of the bid, the business plan
is also a part of the contract that the buyer makes with the government.
Typically, Government
also keeps an affirmative vote for itself on matters of asset sale after privatisation in the sales contract.
How does the government protect
the interest of the workers when a PSU is privatised?
The Indian government
is proud of its record of protecting workers in privatised PSEs, and it
probably enjoys the most worker-friendly record anywhere on earth. In three
disinvestments thus far, the sales contracts stipulated that there would
be no workers retrenched, and those contracts have been adhered to in every
case. The government is also proud of its role in the offer of Voluntary
Retirement Benefits, which in all three privatisations were generous and
retirement was purely voluntary. Government believes that our PSE workers
have put in long years of hard work and deserve to be treated with fairness,
transparency and generosity. After a PSE is privatised, government remains
involved in two ways. First it is still a partner to the sales agreement,
so it has a responsibility to ensure that the buyer lives up to his promises
in terms of how workers are treated. Secondly, as a private sector firm,
the privatised PSE falls under Indian law as does every other company in
the country – labour law, employment law, safety regulations, tax law, and
so forth.
How can citizens be assured
that a political-bureaucratic nexus does not result in dishonest deals by
the bureaucrats/political leadership? What are the checks?
The government
is undertaking disinvestment because it believes that government has ‘no
business’ being ‘in business.’ In other words, our PSEs have suffered from
politics and bureaucracy and only businessmen are good at running businesses.
This is why it is important to keep politics and bureaucracy out of the
privatisation process.
Thus government’s
role in privatisation is to identify those PSEs to be divested, then hand
the process over to competent, international experts who carry out the process
according to an internationally-approved and transparent formula. That process
is carried out beyond the reach of politics or bureaucracy. Then finally
recommendations are made to government which can only approve or not approve
the transaction. If they do not approve the transaction then the process
begins again, still outside the reach of politics and bureaucracy. In this
way, no sensible person can argue that any privatisation was not completely
honest, transparent, trustworthy and effective. We are rather proud of this
system, which is the most open and reliable process anywhere in the world.
Proof of this can be found in the enormous, reputable firms willing to bid
for Indian PSEs being privatised. Countries with less exacting privatisation
procedures rarely attract interest from such internationally respected companies.
Are there any qualification criteria laid down
for bidders in case of disinvestment?
Typically, while
calling for Expressions of Interest, networth/turnover criteria are prescribed
which the bidders have to fulfil in order to qualify.
This amount varies from case to case, depending upon the size and
nature of the PSU being disinvested.
The reason why such criteria are kept in most cases is that government would like to be
certain that the strategic partner has the necessary financial muscle to
run the PSU and raise the necessary funds which would need to be injected
into the PSU post disinvestment, as
well as a guarantee that the government will have adequate recourse in situations
of default and invocation of the indemnity clause.
Very recently, government have also issued guidelines stipulating
that a bidder would get disqualified in case of any adverse orders against
him by a regulatory authority or a conviction by a court of law, pertaining
to a grave offence; or a charge-sheet by a government investigating agency
for offences relating to security and integrity of the country by the bidder
or a sister concern etc.
While one can understand disqualification
criteria on the grounds of national security, it is not clear what objective
criteria the government would adopt to decide whether a grave offence is
made.
Our guidelines
say that whether an offence is grave or not will be judged by the government.
Therefore, whenever it comes to the notice of the government that there
is an adverse order against the bidder, the government investigates the
matter, provides an opportunity to the bidder to present his case and then
takes a position on a case-to-case basis whether a grave offence is made
out.
top
There seems
to be an apparent contradiction. For instance, Ashok Leyland, Videocon etc.
are on the disqualification list. When they wish to set up a green field
project, and in the process have recourse to huge funds from financial institutions
and obtain approvals from different government agencies, they are free to
do so. Yet for an investment decision in a disinvestment strategic sale
– a brownfield project - they would
be debarred. Moreover, a company with a minor adverse order
from SEBI would get debarred whereas a company with a major customs/income
tax penalty order would not be disqualified.
The reason why
the government insists on such qualification criteria in the case of disinvestment
is that the strategic partner would be a ‘partner’ of the government in
running the PSU as a joint venture. Therefore, government would like to ensure that its business partner
is a person with a clean record, ensuring that national assets are not being
handed over for management to a ‘tainted’ person.
top
Knowing the
corporate world and the scams of some big, wealthy business houses, won’t
this lead to a situation where government would hardly be left with any
‘untainted’ bidders?
Disinvestment is
not a distress sale. Government would prefer few bidders (even no bidder)
rather than handing over national assets to ‘tainted’ business houses. Moreover,
the entire privatisation process is designed to identify bidders who are
ready, willing and able to make PSUs grow larger and stronger – something
obviously more likely from one of the many honest, credible and hard-working
companies here and abroad.
top
What happens
if the government inducts a ‘untainted’ partner today and the strategic
partner becomes ‘tainted’ tomorrow? Do the agreements address this
situation?
Agreements do not
address this situation because, under India’s legal system and in legal
systems throughout most of the world, contracts and sales agreements are
matters of Civil Law while criminal conduct falls under the Criminal and
Penal Codes. If an owner of a privatised firm, or of any firm, commits a
criminal act, he or she answers to the criminal justice system. However
let us be clear – many or even most of our PSUs are already plagued with
problems of serious corruption, more so and to a greater degree than private
sector firms. Privatisation will reduce corruption, not increase it.
Hidden Subsidies
Waiver of Dues of Public Sector Enterprises
Figure in crores of Rupees
Item
|
1997-98
|
1998-99
|
1999-00
|
|
1.
Loan
repayments written off
|
300.70
|
392.26
|
5073.00
|
|
2.
Interest
waived
|
193.16
|
1168.13
|
858.08
|
|
3.
Penal
interest waived
|
62.60
|
209.02
|
130.54
|
|
4.
Repayments
of loan on which moratorium allowed
|
304.99
|
88.88
|
12.14
|
|
TOTAL
|
861.45
|
1858.29
|
6073.76
|
Subsidies
and Guarantees to PSEs & Their Accumulated Losses
Figure in crores of Rupees
Item
|
1997-98
|
1998-99
|
1999-00
|
|
Subsidies
related to administered prices
|
10028.44
|
11053.00
|
11999.36
|
|
Guarantees
given by Central Government
|
5372.18
|
3874.07
|
5614.74
|
|
Accumulated
losses
|
41928.99
|
47713.99
|
52550.97
|
Illustrations of PSEs
where Restructuring / Rehabilitation Undertaken
(Amounts in crores of Rupees)
S.No
|
PSE
|
No. of rehabilitation / restructuring attempts made for revival
|
Approx. amount of waiver/ fresh
funds infused *
|
Paid up Capital
|
Net Worth
(31.3.99)
|
P.&L. A/C accumulated losses (31.3.99)
|
|
1.
|
Bharat Refractories Ltd.
|
Two
revival packages approved (July 96 and Jan. 99)
|
61.64
|
103.90
|
-28.79
|
-131.57
|
|
2.
|
Heavy Engineering Corpn.
|
Six
attempts (1972, 75, 81, 89, 97, 99)
|
N/A
|
437.88
|
-638.40
|
-1095.35
|
|
3.
|
Hindustan Cables Ltd.
|
January
1999
|
122.60
|
408.29
|
-57.02
|
-520.43
|
|
4.
|
Hindustan Shipyard
|
Two
attempts since 1995
|
470.90
|
96.81
|
-988.19
|
-1085.10
|
|
5.
|
Hindustan Steel Works Constr. Ltd.
|
1997-99
|
975.17
|
20
|
-1363.26
|
-1383.28
|
|
6.
|
Indian Drugs & Pharma. Ltd.
|
1994,
1996, 1997
|
328.92
|
116.88
|
-872.06
|
-1201.55
|
|
7.
|
Instrumentations Ltd.
|
Referred
to BIFR in 1993
|
17
|
24.05
|
-7.15
|
-72.94
|
|
8.
|
Jessop & Co.
|
Two
attempts (1986, 1997)
|
|
40
|
-170.73
|
-258.48
|
|
9.
|
Mining and Allied Machinery Corporation
|
Several
attempts (1973, 76, 80, 86, etc.)
|
134.50
|
39.19
|
-881.39
|
- 897.72
|
|
10.
|
Rashtriya Ispat Nigam Ltd.
|
Two
attempts; Capital restructuring (July 93 & May 98)
|
N/A
|
6493.85
|
3751.69
|
-4053.83
|
*
Indicates only one part of rehabilitation packages, which included many
other concessions as shown below.
The
revival packages include a combination of some or all of the following:
1.
Conversion of cash losses to interest free loans or equity
2.
Moratorium on payment of all loans
3.
Interest holiday on outstanding government loans
4.
Write
off of outstanding non-plan loans
5.
Write
off of interest on government loans
6.
Conversion of dues towards tax and interest into soft loans
7.
Waiver of bank interest and dues
8.
Conversion of outstanding cash credit into working capital term loan
9.
Concession
on existing power tariff (by State Government)
10. Release of fresh loans
Conversion of loans into equity, etc.
