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In 2013-14, the government's disinvestment program too was a failure having raised only 3 percent of the Rs 40,000 crore target through disinvestment of public undertakings. With the government refusing to give up its iron grip on poorly performing PSUs we are suggesting a middle path.
Our big idea is to set up a trillion-dollar sovereign wealth fund created out of the shareholding of public sector undertakings to put India back on the path of high growth and development.
So, how can we achieve this? One, set up a government-owned but professionally-managed fund to which the government will transfer all its shareholdings in public sector companies.
Two, the fund will create value in PSUs by enforcing better standards of governance.
Three, this fund will be listed in New York and London to raise up to USD 1 trillion in a mix of debt and equity over the next 6-8 years.
Four, the government will retain 51 percent plus of this fund thereby keeping all public sector companies under government ownership until and if our parliament is ever ready for large scale privatisation.
To debate this idea we have Mohandas Pai, the Chairman of Manipal Group of Institutions who was a former board member of Infosys. Also, joining us is Madhav Dhar, Managing Partner of GTI Capital and with them is Dhiraj Nayyar, CEO of Network18's Think India Foundation.
Raghav: Madhav you have been on Wall Street, tell us is it a workable idea?
Dhar: It's a terrific idea. Very few things are pro-growth, anti-inflation, anti-corruption and pro-efficiency and especially for a twin deficit country like ours this has multiple positives for it.
So, all in all it's a terrific idea. Like everything else in India it will be the politics of the implementation and the formulation of this that will matter and at the risk of been facetious, what's wrong with this idea is that there is nothing wrong with it.
Raghav: Where do you think if it is likely to get tripped in sort of popular debate, where do you think it is likely to get tripped; on what point?
Dhar: There will be a couple of points. One is that this smells like disinvestment and again as we know in India you can't even say privatisation, let alone disinvestment. So, what is nice about this idea is that it is reform by stealth. In India that's the only way reforms can work. Somebody has to give up control and in this case it will be the individual ministries that are responsible for the various public sector assets. So, that's where the resistance will come from. You are in affect abdicating some or entire responsibility to a 'professional group', that's going to oversee – pick a number somewhere between quarter of a trillion to a trillion dollar of Indian sovereign assets, that is huge power, huge responsibility that somebody has to abdicate which is never easy.
Raghav: The two or three problems that we have had with our disinvestment program, whenever we announce it, the price drops, people start worrying about will it take away control from the government and ministries start fighting. Now, all these problems can be addressed through this single sovereign fund idea. So, your assessment and your reaction to what you heard from Madhav?
Pai: It is an idea worth considering. It will have many benefits, it will make sure that ministries focus on policy making and don't dabble in business; they are not good in running business. Second, like you said, when they disinvest it goes through a torturous process and by the time it comes to the market, the market is not ready and the leakage of information about the entire process - we have seen this, the prices fall whenever the government comes. It will do way with this because this will be in a sort of a permanent fund which will be available. The third thing which gives me some hope is the ETF which is already been listed right now, right? Goldman Sachs did this ETF along with the ministry of finance where they put some stocks into an ETF and they sold it and realised money and the large sovereign fund like this which is able to monetise at the time of its choosing to give support to the ex-chequer or whatever it is in a non combative manner with good timing, enhancing value is wonderful.
Raghav: Mohandas picked up a nice one. The government in a very tiny way through this ETF has already started doing this but it's very tiny, I won't even call it a half measure, its virtually a no measure. So, why don't we look at it in a much bigger way?
Nayyar: The problem as Madhav correctly pointed out is political. For example, disinvestment is a uniquely Indian phrase. I mean what does disinvestment mean? Its actually investment, you are getting fresh investment into public sector companies. Privatisation is a word which is not mentioned because the moment you mention it parliament is up in arms. So, there are several problems with the whole disinvestment, privatisation, letting go off control. However, there is no reason why this cannot be done because we are actually saying the government can retain control. Now, the only problem here is as Madhav pointed out is individual ministries may lose control. So, they may resist. However, this is where a strong Prime Minister comes in again. So, its government controlled but it will not be ministry controlled. It will be controlled by a professional board on behalf of the government. This can be done because it is an intermediate step between full privatisation or disinvestment and letting them be as they are. So, this will improve governance while the government can retain control over their strategic assets.
Watch the video for full interview
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