Faced with such criticism, which is only likely to increase once the accelerated privatisation drive currently underway is completed, Disinvestment Minister Arun Shourie has decided to launch a personal campaign to pre-empt such criticism. The first point being made by Shourie is that the interest earned or saved by the governement on the sums realised from strategic sales made thus far of equity in four PSUs (MFIL, BALCO, CMC and HTL) is many multiples of the dividend it used to earn by holding onto those shares. The interest earned or saved even assuming a 10 per cent interest rate would have amounted to Rs. 112 crore a year, whereas the dividend that was being received from those shares was just Rs. 7 crore a year. Thus there is in his view an annual gain of Rs. 105 crore by foregoing the Rs. 7 crore dividend.
 
That Shourie is being his disingenuous self by touting these figures should be obvious from his choice of the dividend for comparison with the interest saved. The dividend, we are all aware, is the part of the profit of an enterprise that is paid out to shareholders. The actual gain in a year for a shareholder is, however, the profit per share. The shareholders of a company, in this case the government, may choose not to pay out the full profit as dividend, but to retain some for reinvestment purposes. It is through such decisions that VSNL, for example, had accumulated cash reserves to the tune of Rs. 7,000 crore, which the government is stripping it of prior to divestment.
 
So if the interest earned or saved on the sum garnered by selling a share is to be compared with anything, it should be with the profit per share. That should have been obvious even to someone with a rudimentary knowledge of arithmetic and accounting, which we presume the honourable minister has. So there must be some other reason why he chose to compare non-comparables.
 
Further, even profit is not an adequate indicator of the gain from the creation of a PSU. Public sector enterprises, economists agree, are not pure profit-making machines, but instruments used by governments to achieve a range of objectives. These could vary from closing infrastructural gaps that may remain if investment was purely private to ensuring access to products crucial to development at appropriate prices. This would imply that investments are made even in areas where profits are low or non-existent because of the external benefits such projects deliver or that profits are foregone in order to keep prices down in pursuit of other objectives. To ignore such possibilities and make profits, which contribute non-tax revenues to the government, the sole reason for establishing public sector units, is to conceal the actual grounds on which public capital formation has occurred in post-Independence India or elsewhere in the world.
 
Finally, Shourie's comparison of interest and dividends makes every private buyer of a public asset a bit of a fool. Consider any one of the buyers who have acquired public properties. Just as Shourie presumes that the government could have invested the sums paid by these buyers in interest-bearing financial assets offering a 10 per cent return, these investors could have done the same. This implies that when they chose not to invest these sums in such deposits but to purchase PSU equity instead, they were betting on earning returns from their investment that were significantly higher than 10 per cent, so as to make the decision to take on the risk involved in managing real assets worthwhile.
 
Thus what Mr. Shourie is saying is not that the government through disinvestments was earning more returns, but rather that he and the government he represents, which have constituted themselves to manage a country as large and complex as India, and are even trying to engineer a change in its attitudes and culture, are incapable of managing the assets of PSUs as effectively as would be done by the private buyers acquiring a ‘strategic' stake that gives them management control.
 
In fact, Shourie makes this incompetence he confesses to into a virtue when he informs members of Parliament that after the sale: (i) the five companies concerned "are running and would continue to run at higher capacity utilization and thus would give more taxes and revenues to the State and Central Government"; (ii) "no worker has been retrenched or would be retrenched (except providing for restructuring through VRS route as is done in CPSUs also); and (iii) when compared to instances where minority shares have been sold without the "strategic" hand-over of control to the purchaser, the price-earnings ratio, or the price at which the shares were sold divided by the dividend per share was much higher in the case of the five instances of strategic sale he refers to.
 
Thus, the fact that the private buyers have been able to keep the companies running at higher levels of capacity utilisation without any retrenchment, is seen not as an indictment of the government's incompetence and inability to manage these relatively small-sized corporations, but as a vindication of privatisation itself. That is, any sign of government failure should not result in a replacement of that government by one that is competent (as is expected to happen in the case of private management failure), but by the handing over of the responsibilities of the State to the private sector. Unfortunately, that logic cannot work in all cases. The Indian government has failed to eradicate poverty or  put the country's children to school even after five decades of independence. No one would think of handing over such tasks to the private sector, nor would there be any private takers for such "unprofitable" activities.
 
As far as price-earnings ratios go, the Minister is once again making spurious comparisons and arriving at unwarranted conclusions. Let us start from the widespread concern that public enterprises are being sold at values below those warranted by their assets and their potential. Given that, does a lower price-earnings figure for non-strategic sales indicate that the government has been even more incompetent in divesting minority equity or does it prove that the price garnered through strategic sales was better than expected? Further, a high price earnings ratio can be the result of a high price for equity sold or a record of low dividend payments. Mr. Shourie's government has consciously run-down public corporations in the run up to their divestment. This has made surpluses earned and dividends paid by these corporations unusually low relative to their past record. A striking example of that is a company like IPCL that was extremely profitable in the past. If this is the general trend, a high price-earnings ratio at the point of sale of equity is not the reflection of a high price but rather of a low dividend. Once again, Mr. Shourie seems to have not exercised his arithmetical common sense.
 
Finally, Shourie gives the game away when he says that past-efforts at making non-strategic sales of equity have been unsuccessful because, since Indian stock markets lack depth, there were not enough takers for these shares, and purchases were made largely by financial institutions such as the UTI at prices which have subsequently fallen leading to losses. This implies that attempting to get a reasonable price for equity, given the asset position of the PSUs, is a near impossible task. This would be all the more true when the accelerated privatisation of a number of PSUs is sought to be undertaken. If despite this the government insists on going ahead, certain consequences are inevitable. Prices would be low relative to asset values and major concessions such as provision of a "strategic stake" or management control even with a minority shareholding would have to be given. Even with such concessions sometimes a sale may be difficult to clinch, as has happened in the case of the Ashok Hotel at Delhi and Hindustan Zinc Limited.
 
In the circumstances the best option is to drop the disinvestments programme, close down the DoD and invest time in restructuring PSUs to exploit their potential. Mr. Shourie's effort to win the support of Members of Parliament with a poorly drafted letter full of faulty arguments is perhaps attributable to the fact that he too fears that this truth is now too obvious.