The Cabinet Committee on Economic Affairs (CCEA) empowered alternative mechanism for disinvestment is reported to have finalised selling 100% equity of Central Electronics Ltd. (CEL), a Central Public Sector Enterprise (CPSE), for a paltry sum of Rs 210 Crores, to a private entity called Nandal Finance and Leasing Pvt Ltd. This private entity is a financial intermediary. It has clearly no competence, managerial or technological. It cannot be expected to bring technology and best management practices. The scientific community is concerned that CEL will be destroyed and ultimately dismantled by this company.
The proceeds from the strategic disinvestment of CEL will be two hundred ten crores. It is a small amount for the Central Government. When compared to the real value of the assets sold in the case of CEL, this meager amount makes absolutely no sense. Today’s market value of the 50-acre land CEL possesses in the National Capital Region (CEL’s Annual Report for 2019-20) in itself exceeds Rs 500 Crores. It is a profit making company. It has orders in the pipeline worth Rs. 1592 crores, and Rs 132 crores as collectible dues from the government agencies. The net effect of the sale is that the government as the owner of the CPSE will be surrendering its entitlement to such a vast asset base, literally for a song.
CEL was set up by the CSIR as a mechanism for indigenous technology development and technology commercialization. CEL has developed several products for the first time in the country through its own R&D efforts as well as in collaboration with CSIR and DRDO laboratories. CEL is contributing to frontier areas of electronics manufacturing, product development for strategic needs of defense and railways and solar photovoltaic business, which is a key area for indigenous technology development.
With 130 engineers of proven competence, capable of tapping more than 1000 retired technical personnel whose know-how is even today accessible, in whom the S&T agencies and strategic departments have confidence; certainly the intrinsic value of intangibles of CEL has not been discovered by the Transaction Advisor team in Resurgent India, an entity whose credentials are seriously in doubt, and needs to be removed from the list of the advisors providing advice on nine or ten more CPSEs to the Centre on disinvestment decisions.
The government cannot take the plea that the CEL is not playing a strategic role in nation building, as it had acknowledged it in unambiguous terms when the concerned Minister apprised the Lok Sabha on 26-7-2019 of the important role played by the CEL (Lok Sabha Starred Question No. 497). The Parliamentary Standing Committee on Science and Technology, in their 328th Report tabled before the Parliament on 6-3-2020 also expressed their appreciation at CEL’s efforts to develop indigenous technologies in strategic sectors.
The sale of CEL reveals the inbuilt bias in hasty privatization towards undervaluation of intangible assets of CPSEs. Further since the private entities buying the public assets would be raising most of the needed resources from the public sector banks the decision to mobilize resources through the privatization of public assets is a flawed policy option for the nation.
The Objectives of the latest Disinvestment Policy:
An objective evaluation of this transaction in the light of the new disinvestment policy announced by the Finance Minister in her Budget Speech on February 1, 2021 shows how it defeats the stated objectives of its own policy, leaving alone its implications from the point of view of the nation’s interest. The policy expects that, post-disinvestment, economic growth of CPSEs/ financial institutions will be through “infusion of private capital, technology and best management practices and it will contribute to economic growth and new jobs”. It expects the “disinvestment proceeds to finance various social sector and developmental programmes of the government”.
Does the sale bring additional fiscal proceeds to finance various social sector and developmental programmes of the government?
In our statement on the latest disinvestment policy (web link www.reclaimtherepublic.co), we have explained how fallacious it is to put forward this argument in the following words.
“The argument that suggests or implies that the sale of public assets is a non- inflationary means of raising additional resources as it implies no recourse to fiscal deficit, is invalid. In terms of macro-economic effect, there is no difference at all whether government borrows directly from the banking system to finance additional expenditure visualised or whether it raises equal amount of resources through the sale of PSEs to the corporate sector which borrows from the same banking system to finance its acquisition of such PSEs.
Furthermore, privatization of a public asset involves surrendering entitlements to the stream of future receipts that the asset would generate and which are the basis for assessing its current value. The proceeds from the disinvestment will be meager compared to the real value of the assets sold because of the inbuilt bias in hasty privatisation towards undervaluation of assets. Moreover, the corporate sector which would buy the public assets would be raising most of the needed resources from the public sector banks.
Instead, there are several other more cost effective ways to raise additional resources. For example, the government could prune non-productive and low-priority items of expenditure, minimise expenditure on tax concessions given to corporate businesses etc. On the receipts side, the government could raise additional resources by imposing redistributive taxes such as higher income tax for higher slabs of income, consumption tax on conspicuous consumption levels, real estate taxes, wealth tax, inheritance tax, higher capital gains tax, taxes on profits accruing from speculative trading in the stock markets and windfall profits etc., which will also be in line with the Directive Principles that require progressive reduction in income/ asset inequalities in the society, reduction in concentration of wealth and so on. There are studies that show that reduced income inequality in the long run will facilitate balanced and sustainable growth.”
What are the legal constitutional implications of this disinvestment?
The latest disinvestment policy, like the earlier ones, is ab initio violative of the mandate cast upon the government by the Constitution to discharge its obligations as a welfare State.
Like any other CPSE, CEL is to be viewed as an arm of the State (the government) under Article 12, set up in pursuance of Article 19(6) (ii) of the Constitution. As discussed in our first report (Privatisation-An affront to the Constitution available at www.reclaimtherepublic.co), it is therefore to be deemed as an instrumentality of the government in pursuing its “welfare” role as envisaged in the Directive Principles. The sale of the CPSEs would thus effectively disempower such an instrumentality and shrink the government’s welfare role and, as such, it violates the mandate enjoined upon it by the Constitution.
People’s Commission’s finding:
Thus, the sale of CEL implies underselling a highly valuable asset base of the government for a paltry sum to a company that may change its role to the detriment of the national interest. The sale violates the Constitutional mandate of the government and it is therefore legally not sustainable. To consider the sale as a source of non-inflationary fiscal resource for the budget is fallacious, as such an argument is patently invalid. If the government wishes to raise additional fiscal resources, there are more benign and effective ways to do it. Therefore, from all these three points of view, we feel that the transaction has hurt the public interest, as well as the overall national interest.
Our Appeal to the Parliament:
We appeal to the Parliament to get this transaction fully investigated so that it could be put on hold till clarity emerges on the latest disinvestment policy of the present government.
On behalf of the people, we feel that the country cannot afford to allow frittering away of the valuable resources of the CPSEs in such an indiscriminate and a sweeping manner against the public interest.
About Peoples’ Commission on Public Sector and Public Services (PCPSPS): Peoples’ Commission on Public Sector and Services includes eminent academics, jurists, erstwhile administrators, trade unionists and social activists. PCPSPS intends to have in-depth consultations with all stakeholders and people concerned with the process of policy making and those against the government’s decision to monetise, disinvest and privatise public assets/enterprises and produce several sectoral reports before coming out with a final report. Here is the first interim report of commission- Privatisation: An Affront to the Indian Constitution.