By
Nantoo Banerjee
Who is the owner of Hindustan
Petroleum (HPCL) — ONGC Limited or the government? Public sector oil refiner
and distributor Hindustan Petroleum Corp Ltd continues not to recognise ONGC,
its majority owner, as its present promoter company, despite Oil Minister
Dharmendra Pradhan’s assertion that it belongs to ONGC after the later took
over the government’s controlling stake in HPCL. In its stock exchange filing
of the company’s shareholding pattern as of the end of September, HPCL listed
the “President of India” as its promoter with “zero”
percent shareholding.
That’s not funny. It might have been
intended to convey its displeasure about the way the government chose to
transfer its equity ownership in favour of ONGC. Also, HPCL may not be wrong to
list the ‘President of India’ as its promoter since ONGC, its current official
promoter by dint of shareholding, belongs to the Government of India. HPCL
listed ONGC as “public shareholder”, owning “77.88 crores” of
shares or “51.11 per cent” of the company’s equity. A long-time
public sector marketplace rival, HPCL became a ONGC subsidiary, following the
government disinvestment to reduce the latter’s annual budget deficit.
Originally, HPCL was known as ESSO, a US oil company, before it was hurriedly
nationalised by the government after the Bangladesh liberation war.
Incidentally, HPCL is not the only
public sector enterprise in which the government has sold its stake — partly or
substantially — in favour of another public sector company to fund its budget
expenditure. Thanks to lukewarm stock market interest in buying government
shares in PSEs at a premium, the government is practically forcing high net
worth state enterprises participate in its disinvestment programmes. Even
state-owned financial institutions such as Life Insurance Corporation of India
(LIC) have been induced to lift government shares in PSEs. Unfortunately, the practice is severely
impacting the public sector’s capital expenditure programmes for want of enough
‘free reserves’ which are built through transfer of net profits after dividend
payments. Such reserves often come handy to expand capacities, diversify the
product range, make acquisitions and invest in forward or backward integration
activities to make the enterprise stronger in terms of financial strength and
market presence.
Due to the government’s desperate
disinvestment initiatives, PSEs are now forced to gobble up government shares
in each other. PSEs are even made to borrow funds from the market on the
strength of their net worths to buy prescribed government stakes. For
instance, ONGC had to borrow as much as
Rs 24,876 crore for the HPCL acquisition that helped the government meet its
disinvestment target for the 2017-18 fiscal. ONGC’s total cost of government
stake acquisition was Rs 36,915 crore. Earlier, Indian Oil Corporation (IOC)
was made to buy the government stakes in Kolkata headquartered IBP and Chennai
Petroleum Corporation. Worse still, FCI was reportedly forced to borrow Rs. two
lakh crore as the government failed to pay its bills.
Investments by PSEs are expected to
grow at a much slower pace in 2019-20, as capital outlay by public sector
enterprises is expected to remain at almost the same level as 2018-19, while
capital spending by the Centre is budgeted to grow at a much slower pace next
year. Companies such as NHAI, ONGC, IOC and HPCL are expected to make the bulk
of the spending in the coming financial year. PSE investments in the power
sector are expected to decline to Rs 44,332 crore in FY20, from Rs 59,925 crore
in FY18. National Thermal Power Corporation and Power Grid Corporation are
likely to account for the bulk of investments in this sector. The pressure from
the government stake sale, indirect funding of government credit and supporting
government expenditures and diktats such as ‘buy Indian’, support SMEs, are
weakening PSEs’ finances. As many as 35 PSEs are lined up for strategic sale.
According to reports, they include Air India, Air India subsidiary AIATSL,
Dredging Corporation, BEML, Bharat Pumps Compressors, and Bhadrawati, Salem and
Alloy Steels Plant (ASP) units of steel major SAIL, Hindustan Fluorocarbon,
Hindustan Newsprint, HLL Life Care, Central Electronics, Bridge & Roof
India, Nagarnar Steel plant of NMDC and units of Cement Corporation of India and
ITDC.
The selling of non-performing or
low-performing assets of PSEs to strong private bidders is understandable. The
government is not expected to nurse loss-making, unviable, non-strategic public
enterprises for ever. It may be justified to exit from such enterprises.
However, in a growing economy such as India, the government, the key investor
in the core sector and infrastructure, need to support such enterprises even if
they are not performing as well as they are expected. In the absence of large
private sector investment in India’s core sectors and infrastructure, the
government has to play a more aggressive role to strengthen the domestic
foundation of industry. There is a lot to learn from China, France, Italy and
Spain, in this regard.
Such
reports as the share of national highways in the road fund being reduced to
accommodate investments in telecom and healthcare are far from comforting. The
government has changed the nature of the central road fund and renamed it the
Central Road and Infrastructure Fund (CRIF) through an amendment to the Central
Road Fund Act, 2000. The kitty of Rs.1.28 trillion for 2019-20 is now said to
have been spread thinly across as many as 12 sectors. The amendment prescribes
the road cess be first credited to the Consolidated Fund of India and later,
after adjusting for the cost of tax collection, should go to the CRIF. Such a
measure may not bring the desired benefit to each of the beneficiaries. Large
government spending in core and infrastructure sectors will strengthen economic
growth and open fresh employment opportunities. At the current stage of
economy, the government should be more concerned about investment in core and
infrastructure sector PSEs than compelling stake sale in them. (IPA Service)
The post PSEs Are Buying Into Each Other To Fund Government appeared first on Newspack by India Press Agency.
