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Location: Home / Technology / Why profitable strategic PSU CEL’s sale leaves scientists aghast

Why profitable strategic PSU CEL’s sale leaves scientists aghast

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As the central government speeds up sale of public assets to generate revenue, serious questions have been raised over the latest privatisation (on November 29, 2021) of Sahibabad-based Central Electronics Limited (CEL), which worked under the Department of Scientific and Industrial Research (DSIR). These questions need greater attention and explanations.

For one, main opposition party, the Congress, listed a series of disturbing facts related to the case a few days ago. CEL is a profit-making PSU with a gross profit of ₹136 crore in FY21. Its reserve price was fixed low at ₹194 crore—as against its market capitalisation of ₹957 crore; its 202,000 square metre of land alone valued at ₹440 crore, as per the prevailing circle rate, and its pending orders as on October 31, 2021 stood at ₹1,592 crore—which alone would have yielded a profit of ₹730 crore.

While CEL is engaged in “research and development in strategic electronics”, it was sold at ₹210 crore to Nandal Finance and Leasing Pvt Ltd (NFLPL), a private financial entity with a questionable past—it has less than 10 employees, none of whom have had five years of continued service; 99.6% of its holdings is with the Premier Furnitures and Interiors, which has nothing to do with research and development of electronics or technology; a case against NFLPL is pending with the bankruptcy tribunal NCLAT, and the two bidders for CEL—NFLPL and JPM Industries—are interrelated through parent companies and both bid marginally over the reserve price of ₹194 crore.

For another, the scientific community is aghast.

Dinesh Abrol, former chief scientist of the Council of Scientific and Industrial Research-National Institute of Science, Technology and Development Studies (CSIR-NISTAD), has raised fears that selling off CEL to a financial intermediary will eventually affect the future of research and development in electronics in India, as the new buyer may try to dismantle its technological capabilities and manufacturing operations, helmed by a highly professional staff, including 130 engineers.

He writes that CEL has developed several products for the first time in the country through its own research and in collaboration with different CSIR and DRDO laboratories and other scientific institutions. He lists some, “These include the development of the first solar cell and solar modules in 1977 and 1978 respectively; the first solar power plant in 1992; Phase Control Module (PCM); LRDE (Electronics Radar & Development Establishment) for use in Rajendra Radar; Cadmium Zinc Telluride (CZT) for defence applications, and Axle counter for the use of railway signalling systems. Recently, CEL has taken a number of technologies from different national laboratories and institution, and has developed products that are ready for commercialisation. The company has received a transfer of technology (ToT), for example, for one such product namely Ceramic Randome for Seeker Missiles.”

Abrol is shocked that CEL—which has been contributing to frontier areas of electronics manufacturing and product development in the country—has been sold off at a time when the government is promoting ‘Make in India’ (or AatmaNirbhar Bharat, for that matter), and announced to invest ₹76,000 crore to develop semiconductors recently.

Justifying the unjustifiable

Right in the beginning of 2021, the Centre decided to sell most of public assets in the so-called non-strategic sectors to private businesses for two principal reasons: the government has no business to run businesses, and sustaining loss-making PSUs on taxpayers’ money drains resources that could otherwise be spent on public welfare.

The Finance Ministry then issued a notification in February 2021, changing the policy of strategic disinvestment or privatisation to allow profit-making PSUs to be sold—which wasn’t the case until then. On multiple occasions the Finance Ministry has told the Parliament about this change, “In February, 2021, the Government has, notified the New Public Sector Enterprise (“PSE”) Policy. Profitability/ Loss of the CPSE is not a relevant criterion for disinvestment.”

The Finance Ministry has justified selling off profit-making PSUs thus, “Strategic disinvestment of CPSEs is being guided by the basic economic principle that Government should discontinue in sectors where competitive markets have come of age, and economic potential of such entities may be better discovered in the hands of a strategic investor—due to various factors such as infusion of capital, technological upgradation and efficient management practices; and would thus add to the GDP of the country. Further, the resource unlocked by the disinvestment of the CPSEs would be used to finance the social sector/ developmental programmes of the Government benefiting the public.”

Why profitable strategic PSU CEL’s sale leaves scientists aghast

Not one of those arguments seems to justify the privatisation of CEL—even if one were to ignore the specious argument, that it is the government policy to sell off profit-making PSUs in a non-strategic sector, because the government wants to get out of running businesses. The CEL is not only a profit-making PSU, it works in the research and development of critical frontier technology with an enviable record, and should have been treated as strategically important to India.

As against the chronic loss-making Air India, the government is now prioritising the sale of several profit-making PSUs to collect ₹1.75 lakh crore from disinvestment/privatisation in FY22—Bharat Petroleum Corporation (BPCL), Shipping Corporation of India, Container Corporation of India etc. As per the government’s own answer to the Rajya Sabha in July 2021, most PSUs are profitable, not loss-making: “171 Central Public Sector Enterprises (CPSEs) are profit making and 84 are loss making as on 31st March 2020.” That is, 67% of Central PSUs are profit-making.

The central government is yet to explain why it sold off CEL cheaply “like peanuts to entities of doubtful credentials”, as the Congress put it.

Misleading claims of gains from PSU sale

To anyone familiar with the economic policies post-2014, it is clear that these are not for public good. From the new farm laws (now withdrawn) and new labour codes to en masse and indiscriminate sale of public assets, and working towards allowing big industrial houses to run banks, there is little to suggest public goods or public welfare at the core of economic ‘reforms’.

Then there is a resource crunch, largely caused by the prolonged economic slowdown and bad taxation policy—high tax for the poor who can’t pay much but low tax for the rich (corporate) who can pay more. Gross tax revenue has fallen below 10% of the GDP in FY20 and FY21, and is expected at 9.9% in FY22—from 11% or more in FY17, FY18 and FY19. It is clear that the low tax revenue has forced the government to collect more non-tax revenue from disinvestment and privatisation.

Industry body ASSOCHAM pointed out this anomaly in taxation in its pre-budget memorandum to the government recently. Seeking a rate cut for individual taxpayers (non-corporate), it said that with the increase in surcharge, the effective tax rates for individuals (non-corporate) had gone up to 43% in certain cases, while corporate tax remained low—15% for new manufacturing company, and 22% in other cases without tax exemptions and deductions. It reasoned that, “firms/limited liability partnerships should not be required to pay tax at higher rate than corporates as most small and medium businesses are organised as firms, LLPs and proprietorship”.

Diminishing government capacity

While indiscriminate privatisation, like that of the CEL, is bad for the reasons explained earlier, there is yet another important one which the recently released World Inequality Report 2022 highlighted.

It said, in India the private wealth has increased from 290% of the national income in 1980 to 560% in 2020. The speed and scale of this changes surpass that of China, Brazil and Russia and also developed countries. More transfer of public assets to private hands bodes ill for the government to address growing accumulation of wealth at the top and impoverishment of the masses.

The pandemic has worsened public wealth share across the world, including India, further weakening government capacity to reverse the worrying trends of growing inequality and poverty. It also dilutes existing welfare measures like job reservations for the underprivileged—SCs, STs and OBCs. Private entities are unlikely to support the Prime Minister’s pet project of 10% job reservations for the economically weaker sections (EWS) among the upper castes either. The government has told the Parliament that after strategic disinvestment, let alone complete sell-off, a PSU “will no longer remain a Government company” and hence, no question of job reservations.

All these factors should be kept in mind while rushing to hand over profit-making and valuable PSUs to private businesses.