CPI(M) Rajya Sabha MP Sitaram Yechury has strongly opposed the government’s policy of disinvestment of Central Public Sector Enterprises (CPSEs) and rejected the arguments in favour of the move. In response to a letter of union minister of state for finance Nirmala Sitharaman, Yechury has said “I am not in agreement with the explanation given by you in support to your policy of disinvestment of shares in CPSEs, nor with your arguments defending the prudence behind disinvestment”. Yechury also urged the minister to “consider that listing in stock exchanges should not be made a condition for CPSEs for retaining its ‘Maharatna/Navaratna’ status nor the condition of minimum disinvestment of 25% be made applicable to CPSEs”. Following is the correspondence between the minister and the CPI(M) MP. MINISTER’S LETTER In her letter to the CPI(M) MP on September 4, the minister said, “Kindly refer to the mention made by you in the Rajya Sabha on 22.07.2014 during Zero Hour requesting the government to stop disinvestment of Central Public Sector=Enterprises (CPSEs), as it is not a prudent economic measure. Specifically, you have pointed out that because of disinvestment, the government would be losing out on dividends from the CPSEs and that the proceeds of disinvestment go towards consumption expenditure. In this regard, I would like to point out the following: (I) In all cases of disinvestment, the government would retain at least 51% equity and management control of the CPSEs. So, there would be continuing inflow of dividends to the government even after a part of the CPSE stake is sold in the market through disinvestment. (II) For management of disinvestment proceeds, the Government of India constituted the National Investment Fund (NIF) on 3 November, 2005, into which the proceeds from disinvestment of CPSEs were channelised. Seventy-five per cent of the annual income of the NIF was to be used to finance selected social sector schemes, which promote education, health and employment. The balance 25% of the annual income of the NIF was to-be used to meet the capital investment requirements of profitable and revivable CPSEs. The government, in 2009, in view of the difficult economic situation caused by global slowdown of 2008-09, granted one time exemption for utilisation of disinvestment proceeds in full deposited in the NIF over a period of three years till March, 2012 (later extended by one more year) for capital expenditure in specific social sector schemes decided by the Planning Commission and Department of Expenditure. This period was further extended till March, 2013. (III) The government on 17 January, 2013 and 21 February, 2013 has approved restructuring of the NIF and decided that the disinvestment proceeds with effect from the fiscal year 2013-14 will be credited to the existing 'Public Account' under the head NIF and they would remain there until withdrawn/invested for the approved purposes. The approved purposes include recapitalisation of public sector banks and insurance companies, subscribing to shares issued by CPSEs, investment in Indian Railways towards capital expenditure, etc. Specifically an amount of over Rs 15,000 crore realised as disinvestment proceed during 2013-14 went towards meeting capital expenditure of the ministry of railways. Therefore, it is not correct to suggest that the disinvestment proceeds have been used for consumption expenditure. (IV) Disinvestment and listing of CPSEs in stock exchanges also improves corporate governance and helps in the realisation of the productive potential of these enterprises through improved efficiency and profitability. In view of this, the Securities and Exchange Board of India (SEBI) has made it mandatory that already listed profitable CPSEs should have minimum public shareholding of 25%.” YECHURY’S REPLY In his reply to the minister on September 29, Yechury has said, “I am not in agreement with the explanation given by you in support to your policy of disinvestment of shares in CPSEs, nor with your arguments defending the prudence behind disinvestment. (I) I never pointed out about the total stoppage of flow of dividend from the CPSEs to the government. The fact remains that the government is losing the dividend income more and more as it proceeds to off-load its share in the CPSEs in the market in regular frequency. Dividend is a recurring flow to the government. Foregoing a part of such recurring flow of income for one time sales-proceeds does not speak about economic prudence. (II)Your own communication has conclusively shown that the very concept of “National Investment Fund (NIF)” for parking the disinvestment proceeds to be utilised for capital expenditure as well as social sector schemes is yet to take off fully even eight years after its constitution. And disinvestment proceeds realised during this period have all gone to meet the fiscal deficit and nowhere else. Recapitalisation of public sector banks and insurance companies and funding capital expenditure of the most crucial public utility as well as infrastructure service like railways are essentially governmental responsibility for which dilution of equity base of CPSEs cannot be justified which will have other negative ramification on governance of CPSEs. The government could have pulled on the resources/reserves of CPSEs without diluting their equity. I like to know the details of funding on recapitalisation of banks and insurance over years and its linkage with receipt of disinvestment proceeds which may please be sent to me. (III) I like to state also that the expenditure requirement on social sector schemes on education, health, etc is of recurring nature. And banking upon disinvestment proceeds of CPSEs’ shares which is supposed to be one-time receipt for funding such recurring expenditure requirement cannot be logical and prudent. Rather such an approach demonstrates a kind of ad-hocism, besides raising valid apprehension that the government will not stop at disinvesting CPSE shares up to 49% to ensure its holding at 51% in CPSEs as committed in your letter. (IV) The linkage to improvement of corporate governance with listing of CPSEs in stock exchange is not at all understood. Improvement in governance either of the CPSE or of the government itself depends on different other factors and ups and downs in stock market has got little to contribute. Stock market movements suffer from various kinds of manipulations too. How can one explain a public sector company having same standard of profitability, turnover, etc is priced lower than a private sector company with almost same or even lower parameters? Therefore, I opine and urge upon you to consider that listing in stock exchanges should not be made a condition for CPSEs for retaining its ‘Maharatna/Navaratna’ status nor the condition of minimum disinvestment of 25% be made applicable to CPSEs.”