Letter to Prime Minister
Privatisation of Central Electronics Lt. (CEL) and Bharat Earth Movers Ltd (BEML) runs counter to the Prime Minister’s Atmanirbhar effort
Shri Narendra D Modi
Prime Minister of India
Dear Shri Modi,
You have launched the Atma Nirbhar idea with the intention of building self-reliance in the different sectors of the economy. It is indeed a welcome initiative, provided it proceeds in the right direction.
I am afraid that the proposed privatisation of two CPSUs, namely, Central Electronics Ltd. (CEL) and Bharat Earth Movers Ltd. (BEML), runs counter to this idea as explained in the following paragraphs.
CEL and BEML, the former with the Science & Technology Ministry and the latter with the Defence Ministry, are both officially recognised as “Miniratna” companies, which are expected to get adequate professional freedom and support to be able to assume global leadership in their respective fields of activity. Both are profit earning companies, not a burden on public resources. Despite this, the government has simultaneously undertaken their privatisation.
In the case of CEL, the process of disinvestment of 100% of the government equity is at an advanced stage, with the company’s ownership and management control going into the hands of a private company which does not have the remotest link with CEL’s specialised area of work. The government has also set in motion the process of selling 26% of its equity in BEML along with management control to a private agency during the current year. The upset price for the bids in the case of BEML has been indicated at Rs 1400 Crores, a figure that bears no relationship whatsoever with the intrinsic value of that CPSU.
To what extent are these proposals justifiable and consistent with the national interest?
I have raised my concerns in detail on privatising CEL in my letter addressed to the Finance Minister yesterday (https://countercurrents.org/2021/11/the-sale-of-cel-is-not-justifiable/).
The potential value of the company’s 50-acre plot in Sahibabad near Delhi alone is more than Rs 500 Crores and the value of its other lands in Bengaluru etc. are equally significant. Counting the potential value of its plant and machinery, the R&D investments made over the last several decades and the value of its excellent human resources, the real value of this CPSU is several times higher. CEL’s activities have strategic importance, as the company is involved in supplying critical components for supplies to defence services including supplies connected with the seeker missile systems. The concerned Minister’s detailed reply to a Lok Sabha Question No. 497 on 26-9-2019 on CEL’s commendable contributions is in the public domain.
The senior management of CEL, comprising competent scientists, has ambitious plans to make a visible contribution to the nation’s self-reliance effort, as evident from an interview given by its CMD in March, 2021 (https://government.economictimes.indiatimes.com/news/policy/atmanirbhar-bharat-effect-central-electronics-develops-future-ready-tech-for-defence-railway-aviation-markets-gears-up-for-local-to-global-exports/81461422). The reporter who interviewed the CMD has spiritedly described the high morale of CEL in the following words,
“Central Electronics Ltd (CEL) is on cloud-nine. The 47-year-old organization, which has developed future-ready new products for defence, railway and aviation markets, is expecting a revenue growth of 30-40% this fiscal ending March 31, 2021, a positive jump of 300 times, kudos to Atmanirbhar Bharat and innovation. At present, the organization is exploring the export-market: Local to Global.”
Against this background, one should consider the government’s move to sell CEL for a paltry amount of Rs 210 Crores, that too, to a private company whose activities bear no relationship to the preeminent role that CEL has played in nation building over the decades.
Would privatisation not hurt the high morale of CEL’s management and its proud work force?
The company has been involved for several decades in the manufacture and supply of equipment for the defence services and ISRO. Its aerospace segment supplies structures and aggregates for the missile systems of the defence forces.
The company has made large investments in R&D as evident from its continuing research effort. During the 2020-21 alone, the company had to its credit 55 IPRs, which include13 patents, 9 designs, 18 copyrights and 15 trademarks. Further, BEML’s engineers and scientists have contributed
several technical papers published in well known national and international science journals.
BEML has offices in Brazil and Indonesia, in addition to its domestic offices in several cities in India. The company has entered into technical collaborations with its counterparts in Russia and other countries. Its export earnings in 2020-21 were Rs 460 Crores. The potential value of the public lands that BEML holds runs into thousands of crores of rupees.
BEML has made its own commendable efforts towards attaining self-reliance and won global recognition. Should such an important CPSU like BEML be subject to disinvestment at all? What purpose would it serve, to hand over BEML’s management to a private company for Rs 1400 Crores, an amount that bears no relationship to its real value? To what extent does it serve the national interest?
Proposed monetisation of the non-core lands of the PSUs prima facie illegal:
There are some conceptual issues arising in respect of the public lands available with CPSUs in general and, in particular, with the two CPSUs being considered here. Their lands were originally acquired by the States ostensibly for a “public purpose” as defined in Section 3(f)(iv) of the land acquisition Act in force at that time, which implied acquisition of the land for a company wholly owned and controlled by the government. The nature of the ownership of the PSU for whom the land was then acquired cannot therefore be altered in any way. Any such alteration would not only violate the statute but also constitute a breach of the public trust. It is therefore prima facie illegal to monetise any part of such land, as is being proposed now by the government in its scheme of disinvestment and monetisation of public assets. I find that BEML has already set up a separate SPV to “hive off” its surplus lands. The government is advised to get the legal implication of this examined carefully, lest it could entangle itself in avoidable litigation at the cost of the tax-payer.
As far as the lands are concerned and also in relation to the welfare of the workforce of these CPSUs, the concerned States have a stake and unilateral decisions on the part of the Centre will impact adversely on the federal structure that lies at the heart of the Constitution.
In addition, there are other legal implications of PSUs in general being privatised, as such privatisation will shrink the space for reservations for the SCs/STs/OBCs and other societal benefits that PSUs alone can guarantee.
These are generic issues that arise in the case of most CPSUs, including those for which the States had acquired lands under the erstwhile land acquisition law.
Can government prevent divested equity slipping into the hands of dubious overseas companies?
As a result of the relaxations allowed in FDI, one should not be surprised if the divested government equity eventually slips away into the hands of overseas investors, some of whom may not be particularly acceptable. On the face of it, there are no safeguards against such a contingency arising in the present scheme of disinvestment. This concern assumes considerable importance in the specific case of CEL and BEML which are involved in meeting the strategic requirements of the nation.
Against this background, considering the association of both these PSUs with the defence sector and organisations like ISRO etc. and considering the enormous R&D investments they have made over the decades, should the government rush into handing them over to private managements? Would it really serve the national interest? Has the Parliament, which has examined the performance of both these CPSUs over the years, been apprised of the implications of the proposal to privatise them? These are questions that beg for answers.
I appeal to you to ponder over these concerns before taking any precipitate action to hand over these important CPSUs to private managers.
E A S Sarma
Former Secretary to Government of India