Shifting Department of Public Enterprises to finance ministry could help expedite privatisation

The Narendra Modi government’s decision to bring the Department of Public Enterprises (DPE) under the Ministry of Finance from the Ministry of Heavy Industries and Public Enterprises is indicative of the desire to expedite and facilitate privatisation. If the government succeeds in selling public sector undertakings (PSUs), also called public enterprises (PEs) and public sector enterprises (PSEs), it will be a big boost to reforms.

Bringing the DPE under the finance ministry will help the smooth transition of PSUs from State-run entities to private companies. A look at the DPE’s allocation of business rules will make us understand how. Some of these are counselling, training, and rehabilitation of employees in PSEs under the voluntary retirement scheme; rendering advice relating to revival, restructuring, or closure of PSEs, including the mechanisms thereof.

This will complement with the mandate of the Department of Investment and Asset Management (DIPAM), also under the finance ministry. DIPAM is empowered to list PSEs on stock exchanges “to promote people’s ownership through public participation and improving efficiencies of CPSEs through accountability to its shareholders”.

Further, it is supposed to bring in operational efficiencies in PSEs through strategic investment, ensuring their greater contribution to economy. Also, it is entrusted to adopt a professional approach for financial management of PSEs.

Shorn of officialese, it means that DIPAM will sell off PSEs, partially as well as fully. The very name DIPAM is clever newspeak, though salutary, not Orwellian. DIPAM, ostensibly about investment, is actually about disinvestment. Investment is disinvestment! DIPAM’s earlier name was honest: Department of Disinvestment.

The government’s justification seems to be that a change of perspective makes investment disinvestment and vice-versa. When a private company puts in money in a PSU, it is investment as well as disinvestment, for government gets that money.

The Modi regime can be accused of indulging in newspeak but we must also remember that public discourse in India is carried out in a leftist phraseology. Privatisers are vilified as the agents of immoral capitalists; and privatising PSEs is dubbed as ‘selling family silver to pay the grocer’s bill’. No leader — certainly not Modi who has cultivated a pro-poor image — can afford to be seen as favouring corporate tycoons at the expense of the nation.

A finance ministry-controlled DPE, in conjunction with DIPAM, will not just expedite the sale of state-run companies but also iron out post-privatisation complications.

The life and times of DPE mirror the history of the public sector—and the government’s changing attitudes towards it—since the early 1960s. The Estimates Committee of 3rd Lok Sabha (1962-67) had “stressed the need for setting up a centralised coordinating unit, which could also make continuous appraisal of the performance of public enterprises,” the DPE website says.

This led to the setting up of the Bureau of Public Enterprises (BPE) in 1965 in the Ministry of Finance. Subsequently, as a result of the reorganisation of the ministries and departments of the Union government in September 1985, the BPE was made part of the Ministry of Industry. In May 1990, BPE was upgrade, made a full-fledged department known as the Department of Public Enterprises (DPE). So, the government’s recent move completes its circle of life; it is back to the Ministry of Finance.

The DPE was moved to the Ministry of Industry because PSUs were seen as the engines of industrialisation and prime movers of economic development. That was then, when socialism was supposed to usher in heaven on earth—social control over the means of production, phasing out of capitalists, no ‘profiteering,’ no filthy rich fattening at the expense of the poor, no inequalities, and so on.

The reality of socialism, however, was in stark contrast with its romance. In practice, it meant tight political control and stifling bureaucratisation with all the attendant evils. The results are for all to see. The returns on investment fell much short of the expectations. PSUs enjoyed all kinds of support from government, including hidden subsidies, yet very few of them could face competition from the private sector. Most of the profits they earn are in the areas where they enjoy monopoly or market dominance, like oil and power. There are even sectors, like telecom, where their dominance has all but ended, with BSNL and MTNL surviving on the taxpayer’s largesse.

Worse, PSUs’ profits are declining. “The overall net profit of the CPSEs declined by 34.6 per cent to reach Rs 93,295 crore in FY20 from Rs 1.43 lakh crore in FY19,” the Economic Survey said last year.

The tale of PSU woes is unending. Fewer than half of 366 PSUs — 171 to be exact — booked a profit in 2019-20. In fact, 110 are not even operational. Over the decades, government documents have pointed out that various revival packages, running into lakhs of crore, have failed to resuscitate sick PSUs.

This is the reason that the government, after years of incremental change and dithering, finally resolved this year to sell off PSUs. In her Budget speech, Finance Minister Nirmala Sitaraman said, “The government has approved the PSU policy. The policy provides a clear roadmap for disinvestment in all non-strategic and strategic sectors. We have kept four areas that are strategic where bare minimum CPSEs will be maintained and rest privatised. In the remaining sectors, all CPSEs will be privatised.”

Bringing the DPE under her ministry will hopefully help the government sell off PSUs. This will also help the taxpayer, who has to ultimately bear the cost of running PSUs.

The author is a freelance journalist