Since six decades, India Inc, especially multi national companies (MNCs) engaged in FMCG including Tobacco, Pharma, Auto and other sectors are enjoying high value government’s stake and the Indian government does not make any liquidation move to encash their stocks to finance the emerging native rural and agricultural market.
The government makes hue and cry about scarcity of funds for the social sector and frequently sells its share in public sector enterprises. It is surprising to note that the government, through its financial institutions such as cash rich Life Insurance of India (LIC) and SUUTI, continue to hold huge share in companies. The question remains – Is there any logic in continuing with companies like HLL, Nestle, Emami, ITC, Godfrey Phillips India, Wockhardt, Suzuki, M & M among others. If profit is the aim, then why should the government compel its institutions to bail out low value stocks of its own companies in tough times?
The government and its agencies have huge stocks in a few moteric companies such as Maruti Suzuki (13.4 percent ), Eicher ( 3.2), M&M (20), Telco (17.39), TVS Suzuki(11.33) among others. At current market price, the government’s stocks in such auto sector companies only can fetch over Rs 60000 crore and this huge fund can be efficiently be used in creating rural markets. Moreover, the government should allow to change land use of industrial land only for converting it to rural Mandis, Cooperatives to help rural commodities to get an exchange opportunity in urban markets.
These big companies have penetrated deeply into rural markets. Being cash rich, these are capable to sustaining on their own. Should they be promoted by public money, funded by institutions governed and controlled by the government? Not at all. Instead, the government should liquidate its stocks in these companies to help skill development programmes and seed capital for new emerging enterprises in the Indian rural markets.
The government’s initiative to liquidate some of these stocks would not only help to reduce the growing tax burden on middle class but also to finance huge subsidy required to surge rural markets, weakened due to over-flooded products from imports by these companies in consumer sectors.
The liquidation of this treasure stake will also help low volume trading presently witnessed in FMCG stocks in capital market. And this will give an opportunity to new enterprises to take stake and help the consumer product stocks in maintaining its value at a fair price instead of struggling in volatile global market.
Indian Corporates like ONGC, SAIL, Tata Steel, RIL and others are passing through a tough phase and facing global heat. The government should not sell the stocks in these companies for funding the government as any such move endanger their risk bearing capacity which is the most critical for emerging rural markets. Some of them supply inputs at sustainable/stable low rates required to boost rural economy and meet the competition challenges emerging from China, Brazil, Singapore, South Korea or even from Bangladesh.
We can take some lesson from the Nitish Kumar’s government in Bihar. While banning the liquor in the state, the government kept open the production of native booz also known as ‘Taari’ which helps rural people to continue their traditional trade and generate some income. It is also a livelihood for many of them. Surprising the government continues its share in the Tobacco companies which produce Cigarettes and come heavily on those who are engaged with Biddi (the poor’s smoke) which is supposedly less harmful than cigarettes. In this way the government is funding a business which is harmful to the masses.
The Government was planning to sell the holding of SU-UTI (Specified Undertaking of the Unit Trust of India) in ITC along with some other blue chip companies. But move is gathering dust now. SU-UTI currently holds 11.27 per cent in ITC. Sale of ITC stock would have fetched over Rs 15,000 crore for the government.
As far as ITC is concerned, it is feared that the sale may result in majority foreign shareholding and loss of Indian control in the firm. London-headquartered British American Tobacco, which holds 30 per cent stake in the Indian cigarette-maker through different entities, has had a strained relation with the ITC management in the past. However, in the larger interest, divesting stocks in MNCs like ITC would be more logical.
So it is suggested that the government should liquidate stakes in such companies and create a corpus fund to provide financial assistance to new enterprises and push rural economy.
( Author is a financial expert and head of Sanjay Sabran & Co.)