PremiumIt is difficult to escape the conclusion that the Centre’s decision to not allow the Kerala govt or any entity owned by it to participate in the strategic divestment of HLL Lifecare Limited is driven more by political reasons than business or financial logic
It is difficult to escape the conclusion that the Centre’s decision to not allow the Kerala state government or any entity owned by it to participate in the strategic divestment of the Thiruvananthapuram-based contraceptives maker HLL Lifecare Limited is driven more by political reasons than business or financial logic.
The Kerala State Industrial Development Corporation (KSIDC), which tried to take part in the tender for acquiring a 100% stake in the wholly-owned Central public sector undertaking, has been informed by the Department of Investment and Public Asset Management (DIPAM) that the extant norms did not allow government-owned agencies, including local PSUs, to make a bid in the disinvestment sale.
Which would appear to be a logical reason, except that isn’t. While clearly, the Centre should not participate in the divestment of assets it owns, for that amounts to taking money out of the left pocket and putting it into the one on the right, and same for ownership, but the fact is that this simple logic has not stopped New Delhi in the past from doing exactly this, i.e. using one central PSU to pick up stakes in another central PSU in order to shore up its finances and reduce rising fiscal deficits.
The Centre did just this when it let ONGC acquire 51.11% stake in HPCL; When Air India’s iconic tower and former headquarters at Nariman Point was sold to the Jawaharlal Nehru Port Trust; When JNPT Life Insurance Corporation picked up 51% stake in state-owned IDBI Bank; When Bharat Petroleum sold its stake in Numaligarh Refinery to another PSU, Oil India Limited, and so on.
In response to the Centre’s decision blocking KSIDC from making a bid for HLL Lifecare, the Kerala state government has pointed out that the 2002 order quoted by DIPAM in support of its stand, does not apply to state governments. But it also needs to be pointed out that in any case, the dusting off of the 2002 order appears to be a last-minute turnaround by DIPAM, since earlier, KSIDC had in fact participated in the bidding for privatization of the Thiruvananthapuram Airport. The state government had also acquired the Kottayam, Kerala unit of Hindustan Newsprint Limited, another central PSU.
HLL Lifecare, started in 1966 as Hindustan Latex Limited under the ministry of health and family welfare, to produce cheap contraceptives for India’s family planning programme, is a mini-ratna, and one of the profitable and successful central PSUs. It clocked a turnover of ₹5,081 crore and profits of ₹112 crore in fiscal 2020-21. Over the years, it has morphed from a condom manufacturer to a diversified healthcare products manufacturer with seven subsidiaries and seven manufacturing locations. Its portfolio includes, apart from the famous ‘Moods’ condoms, other male and female contraceptive pills and devices, an affordable pharmacy business spread across the country, other healthcare services and even a vaccine manufacturing unit.
It has over 10,000 employees, including 3,900 permanent staff (the rest are contractual) who have been vigorously protesting the decision to sell off the company. In fact, the LDF government, whose affiliate trade union is a dominant force in HLL, had originally sought to take over the Kerala-based businesses and units of the company in a bid to protect employees. When that was turned down since the Centre wanted to sell the entire company as a whole and not broken up into parts, the state government had sought time to submit a revised offer for the entire company. After extending the date to 14 March, DIPAM has now inexplicably turned down the Kerala government bid.
The Centre needs to be clear about what its objectives are when it comes to disinvestment. If it is to raise resources, then it should not matter whether the bidder is a private entity or publicly owned. Ownership of a bidder should not matter if it meets the criterion for prospective buyers laid out in the terms for disinvestment sales. Indeed, the Centre has demonstrated that when it suits its purposes, it has no reservations about stake transfers between central PSUs. There is also no reason why well run, profitable state PSUs should not be allowed the same freedom to operate as their private-sector counterparts. In fact, it will only serve to deepen market competition. Why is it okay for a private enterprise to buy disinvestment assets but not okay for a profitable, well-run publicly-owned entity to chart its own path?
KSIDC is also a profitable enterprise. It reported a profit after tax of ₹36.61 for the first nine months of the current fiscal, which is a jump of 62% over the reported PAT for the first nine months of FY21.
Perhaps a state government led by the Left running a profitable PSU, and acquiring a central government PSU, can cause New Delhi untold embarrassment.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!