Why Kill the Golden Goose?

The stock markets have cheered the United Progressive Alliance (UPA) government’s decision to disinvest 10% of its equity in all profit-making central government public sector undertakings (PSUs) and to invest the proceeds in the social sector. But is this what the economy needs and who is going to benefit from the sale?

In its 18-year history, disinvestment has been advocated with differing objectives. In July 1991, when it was first mooted and when stock prices were skyrocketing under the influence of the Harshad Mehta-led bubble, the government sought to sell undisclosed bundles of PSU shares to ride the boom, ostensibly to finance the fiscal deficit. In the second half of the 1990s, when stock prices were ruling low, the National Democratic Alliance government sought to sell large chunks of PSU equity to private firms (euphemistically called “strategic partners”) to realise a better price and to improve management – in effect transferring managerial control to the private partner. Today, even when PSUs as a group are making financial profits, disinvestment is being carried out to augment resources for the social sector.