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SAIL Sell-off Done, But No Direction Yet on PSU Reforms

Raising money by selling off PSU stock--least of all to LIC--is not what PSU reform is all about

The ₹1,700 crore that the government has raised from selling SAIL stock last week has put the spotlight on PSU disinvestment. In some ways, what it does with the public sector is the litmus test of this government's willingness to accomplish deep and long-lasting economic reforms.

I have no doubt that the main protagonists in this drama--namely, Narendra Modi and Arun Jaitley--know very well that the government has no business to be in business. Indeed, both have made statements to that effect a number of times. However, the problem is in translating the idea to action. It wasn't too encouraging that at the time of announcing the coal reforms, Mr Jaitley had to issue an assurance that 'the larger interest of Coal India would be fully protected', as if the interests of Coal India--whatever they are--are more important than those of the country. Still, based on what one knows otherwise, I'm sure Mr. Jaitley was being insincere when he said that. At least I hope he was.

However, the stock market doesn't quite agree that meaningful PSU reforms are a serious part of the government's agenda. The PSU index rose by 44 per cent (to the Sensex' 21 per cent) from November 2013 to May 2014--the period of increasing confidence in the BJP forming a government, with the sharpest increase coming in the first half of May when a Modi government clearly became a done deal.

Since then, in the period that the government has actually gotten going, the PSU index has declined by 7 per cent, compared to the Sensex' rise by 12 per cent. Clearly, the markets had hope of strong and early action on real disinvestment, rather than using PSU stock as an ATM to withdraw cash and fill in the deficit as the SAIL issue has been. As long as the focus is on extracting cash from the public and LIC, there will be little to distinguish this government's actions on PSU reforms and the previous one's. I'm sure this government will be characteristically more efficient and successful in selling off stock to raise cash, but that's neither here nor there.