Mumbai: The finance ministry’s proposal for a minimum 25% public shareholding in all listed Indian firms, private and public, may hit a roadblock, with the Left parties — a key constituent of the United Progressive (UPA) coalition government at the Centre—gearing up to oppose the move, alleging that it will lead to “back-door” disinvestment of shares in state-owned firms.
Dissenting voice: Communist Party of India’s D. Raja said that increasing the public shareholding limit would mean the government’s equity in state-owned firms will have to be brought down.
“It is a manipulative work of the finance ministry to encourage privatization. We will oppose it,” said D. Raja, national secretary, Communist Party of India (CPI).
The finance ministry has proposed to raise the public shareholding limit to 25% from the current 10%, to increase investor participation in the market. Analysts at brokerages say this will broaden the equity market and lead to better price discovery of stocks as there will be more securities to buy.
But Raja said that increasing the public shareholding limit would mean the government’s equity in state-owned firms will have to be brought down. “It is not a question of percentages. It’s a question of policy. This will weaken public sector undertakings (PSUs) and make them vulnerable to creeping privatization,” claimed Raja, who is also the leader of CPI in the Rajya Sabha.
Mohammad Salim, a Lok Sabha member of the Communist Party of India (Marxist) from Calcutta north-east and a member of the parliamentary consultative committee attached to the finance ministry, said all the Left parties were opposed to any such general rule. “Of course, this is a suggestion for back-door privatization,” he said. “What does the finance ministry exactly mean by public shareholding? It must first define that. The Left parties have opposed all moves to privatize public sector undertakings and our position remains the same. The government must come up with specific cases and tell us why it wants to dilute its stake in those companies. Only then we can begin to discuss. But there is no way we can accept any such blanket rule.”
The finance ministry released a discussion paper on this last week and has invited comments on the proposal by 28 February.
The Top 5 listed Indian firms with the least public holdings are all PSUs. They are Hindustan Copper Ltd (with public holdings of 0.5%), MMTC Ltd (0.67%), HMT Ltd (1.22%), National Mineral Development Corp. Ltd, or NMDC, (1.62%) and the Fertilisers and Chemicals Travancore Ltd, or FACT, (1.9%).
The finance ministry’s discussion paper has emphasized the need for a fresh defination of public ownership. Currently, public holding loosely refers to stakes held by non-promoters, including foreign and domestic institutions, mutual funds, employees, as well as private corporate bodies, besides the public.
Based on the market value of PSUs’ stocks at Tuesday’s closing price on the Bombay Stock Exchange, the government could earn as much as Rs1.41 trillion if it divests its stakes in at least 29 listed PSUs where the public shareholding currently ranges between 0.5% and 24.14%.
The list includes Indian Oil Corp. Ltd, Engineers India Ltd, STC Ltd, NTPC Ltd, Power Grid Corp. of India Ltd, Steel Authority of India Ltd and National Aluminium Co. Ltd, besides Hindustan Copper, MMTC, HMT, NMDC and FACT, among others.
According to government policy, proceeds from the sale of shares in PSUs flow into the Centre’s National Investment Fund and the returns from the fund are utilized to finance the social sector schemes of the government in the health, education and employment sectors, or for capital investment in select PSUs.
Currently, stake sale in state-run firms is done with the approval of the cabinet and such decisions have often been opposed by the Left parties, forcing the government to shelve the plan.
The UPA government had given a commitment in the National Common Minimum Programme, a policy that outlines the six basic principles of governance, that the government holding in both listed and unlisted firms will not go below 51%. According to the Companies Act, the government will retain management control of PSUs in which it holds 51%.
“By making it obligatory to have a minimum public shareholding of 25%, the government is planning disinvestment through the back door,” said Raja.
The new plan, if successfully signed into law, will help the government launch a massive disinvestment programme without getting caught in politics, as the law will have to be equally applied to public and private firms.
“We will seek an exemption for the public sector undertakings from this rule,” added Raja.
Ashish Sharma also contributed to this story.