Redifing of Private and Public Sector

India has presence of both public and private sector. There is a debate about the efficiency and role of both public and private sector.

We define Public sector as one, where Govt. whether State or Union has more than 50% stake. Even the subsidiaries of Public sector companies are also called as Public sector. But the companies with holdings of multiple public sector units with none having a stake of more than 50% are not termed as public sector units. This is the reason where companies like Gujarat Narmada Valley Fertilizers Ltd.(GNFC)  is a private sector unit. 

Similarly, companies like ICICI Bank, HDFC, Axis Bank, though promoted by Govt. has got the private sector tag due to dilution of  Govt. holding in favour of public.

The existing management of the companies like ICICI Bank, L&T, ITC, and HDFC has little ownership stake and can be anyday removed by the public shareholders, if they fail to perform. 

Again, there are companies like Reliance, Tata Steel, and Ultratech, where a major shareholder group has a large shareholding, which can enable them to appoint directors of their choice. 

 
It is logical that companies like Reliance, ICICI Bank and GNFC are not tagged in a single group of Private Sector.

Instead, we should have groupings like-

Govt. Sector - Where Govt. exercises control over the appointment of key personnel.

Public Sector- Where broader public shareholders have control over the appointment of key personnel.

Private Sector- Where a major shareholder group has control over the appointment of key personnel.

Privatisation of PSUs should be to the second group than the third group. The control over management of existing Govt. sector be slowly transferred to broader public shareholders. The performance of the companies like ICICI Bank and HDFC is there for all to see with no benefit to individual group.

Infrastructure funding

Banks are reeling under severe stress due to rising NPAs. Even Supreme Court has intervened by asking for the list of defaulters with outstanding above Rs. 500 crores. There is a debate about making public the list. 

Instead of arguing over the same, let us examine the reasons. This will help in taking decisions in future. 

Most of these advances are related to infrastructure or long gestation projects. Funding pattern in these cases have been 75% debt and 25% equity and in some cases, even 80% debt and 20% equity. The debt funding in most of the cases is proportionate to the amount brought by equity. For Example, in a project of Rs. 4000 crores, the equity is Rs. 1000 crores and Debt Rs. 3000 crores. If the promoter brings equity by Rs. 100 crores, the lenders disburse debt by Rs. 300 crores. Again, the promoters bring equity by another Rs. 100 crores and lenders disburse Rs. 300 crores. It goes on. But, promoters fail to bring equity after Rs. 500 crores. What happens then? The project gets stuck up and lenders are left in dilemma, as they have already sunk in Rs. 1500 crores as per matching contribution principle. 

Time has come for high level of discussion on the subject. 

The author calls for solutions from the readers, though he will share his thoughts in subsequent  posts.