Briefly analyzes why the Govt of India must divest its private share holdings in corporate India before turning to divest its holdings in central public sector companies.

1. WHY DOES GOVT. OF INDIA NOT DIVEST ITS HUGE
SHAREHOLDINGS IN INDIA'S PRIVATE CORPORATE SECTOR
BEFORE ITS OWN CPSUs?
Shantanu Basu
Banks and Financial Institutions, mostly in the public sector, hold large shareholdings in
private sector Indian companies. Gammon (63.41%), Indian Hotels (10.67%), Jaypee Infra
(10.30%), Monnet Ispat (50.12%), Samtel Color (30.37%), MCX India (21.95%), ACC
(14.66%), Tata Global Beverages (13.14%), ITC (11.23%), Ballarpur Industries (14.78%) are
some examples.
By valuation, ITC holdings are currently worth Rs. 22584 crore, ACC (Rs. 4722 crore), Axis
Bank (Rs. 40326 crore), ABB India (Rs. 2566 crore), Bharat Forge (Rs 1403 crore), Maruti
Suzuki (Rs. 10629 crore), Ashok Leyland (Rs. 1166 crore), Vedanta (Rs. 2041 crore), Sun
Pharma (Rs. 7682 crore), Piramal Enterprises (Rs. 662 crore), Hero Motocorp (Rs. 1340
crore), JSW Steel (Rs. 495 crore), Dabur India (Rs. 499 crore) are some biggies.
Likewise, central public sector insurers directly hold shares in scores of private sector
companies. They hold another 21.29% of ITC (Rs. 42837 crore), 17.62% of Hindalco (Rs.
5010 crore), 20.55% of L&T (Rs. 28210 crore), 19.66% of Tata Steel (Rs. 7359 crore), ICICI
Bank (Rs. 21801 crore), 14.78% of M&M (Rs. 13743 crore), 12.79% of Ambuja Cements
(Rs. 5450 crore), 12.76% of Yes Bank (Rs. 6785 crore), 10.79% of Infosys (Rs. 26692 crore),
10.06% of RIL (Rs. 32555 crore), 9.22% of Bosch (Rs. 7378 crore), 7.45% of Bharti Airtel
(Rs. 10481 crore) and 7.14% of Bajaj Auto (Rs. 5911 crore) that are some major invested
companies.
The GOI too invests directly in Indian private sector companies. It owns 26.12% of Tata
Communications (Rs. 3461 crore) among innumerable other companies where its share is
minuscule. In companies like ITC and L&T GOI holds about 45% of total paid-up capital.
There is little justification in continuing with this practice, save for patronage by way of
profit-sharing nominee Directors on their Boards. Most of these companies have received
government lands, extended tax holidays, concessional railway, and energy and water tariffs.
Not only that, they have successfully dodged taxes, received huge govt. subsidies (from land
to exports), reneged on bank loans with interest thereon, cornered govt. contracts, often
supplied short or defective materials, created cartels and driven up prices, exercised
stranglehold over essential consumer supplies and myriad more malpractices, mostly with the
complicity of the nations’ successive rulers.
Rather than squeezing CPSUs reeling under wage agreements and declining turnovers to buy
back GOI’s shares and effectively eat into GOI’s indirect cash reserves, why is it that the
Union Finance Ministry does not move to force the private sector companies to buy back
GOI’s shares?
Or is it that these private corporations also happen to be the largest contributors to every
ruling regime’s election kitty? Isn't it apparent why GOI and its agencies heavily invested in
the liquidity requirements of private sector companies and did not exit even when the GOI
needed funds desperately?

2. And I have not mentioned the scores of private sector companies that hardly have much GOI
shareholding but also little trading of their shares. How many of these are shell companies
with a veneer of GOI protection and respectability to cover less than honorable activity? Why
does the Union Finance Ministry not investigate such companies to check on their economic
activity?
I may be guilty of omitting to consider that such investments are a business of those
companies and not investment. Hence, my premise that GOI must empty the book of insurers
and banks and exit from investments may be misplaced. After all, how would GOI generate
returns for policy holders and depositors?
However, GOI keeps saying it does not have enough for our broken infrastructure. If toll
roads and other PPP/JV ventures, even in services, take off in time, there is no reason for
these investments not to earn a healthier return, albeit in phases. Moreover, when one
considers the nature of the insurance business, there is a very healthy margin between premia
and claims settled that should be adequate to provide a cost plus return on policies and
deposits. Further, with mounting NPAs and rising operating costs of PSBs (that the 7th CPC
will compound), there may not be many alternatives available to GOI to shore up the PSBs
and create infrastructure. Further, if GST comes and major CPSUs are doing well as GOI
claims, there should not be much difficulty in servicing insurance policies and bank deposits.
Not just that, GOI also claims that the nation’s GDP at 7.6% in 2015-16 is amongst the
highest in the world. Risk of private divestment held by GOI and its CPSUs/PSBs is
inescapable if resources are to be raised to save our PSBs and build infrastructure to attract
business and investment.
Politicians and industry certainly make for strange bedfellows. The more things are loudly
claimed to change, the more they remain the same!
The author is a senior public policy analyst and commentator