Sell PSU shares to the public, not other PSUs

The Centre’s move to ask listed state-owned undertakings to buy other PSUs’ stakes from the government is suboptimal, cutting out, as it does, the public from the process, and depriving the investing PSUs of the chance to deploy their funds in their own or related businesses.

ONGC acquired 51.11% stake in HPCL. The government now plans to sell Air India’s former headquarters at Nariman Point to Jawaharlal Nehru Port Trust (JNPT). If JNPT has so much spare cash, why did it not build the port at Hambantota? Life Insurance Corporation will buy 51% stake in state-owned IDBI Bank to become the largest shareholder

Using PSU reserves to contain the fiscal deficit by buying up the shares of other PSUs is unfair for the PSUs and the investing public. It prevents broad participation by retail investors in the divestment exercise, and retains state ownership. Direct listing is a sound way to bring down state holding in listed PSUs and pare down significant merchant banker fees and roadshow spends.

The government should be explicit about whether it would privatise the company whose shares are being offered, and if so, specify the time line. Investors must be allowed to buy shares at the prices that they deem appropriate, based on their assessment of the company’s performance and potential.

The government plans to raise Rs 80,000 crore this fiscal via PSU stake sale. Further disinvestment of PSU shares ought to be to the public. The large pool of subscribers with the Employees Provident Fund Organisation and the National Pension System are potential buyers of shares of sound PSUs. The government could market shares directly to workers, who could instruct the saving pools to buy the shares with their savings, and credit these to their own demat accounts.