The reserves and surplus of Central Public Sector Enterprises was Rs 2.59 lakh crore in 2003-2004 when the UPA government came to power. The same has gone up by another Rs 2.26 lakh crore and stood at Rs 4.85 lakh crore in 2007-2008. Who stopped them to use this amount of Rs 2.26 lakh crore for any productive purposes, including social sector expenditure? As a matter of fact, out of this huge reserve and surplus, an amount of Rs 1.42 lakh crore is being utilised in non-productive financial investments. For example, NTPC, a navaratna PSU, was having as on March 31, 2008 cash and bank balance of Rs 14,933 crore, out of total reserves and surplus of Rs 44,393 crore? Do you have to sell shares worth Rs 10,000 crore to Rs 15,000 crore while similar amount of huge money is locked in non-productive reserves? The pet answer is — these reserves are for the company’s expansion and future projects. But is that true? No. Nobody invests all his money, whether capital or reserves, to run a business or start a project. The investor puts a part of it as equity from his/her pocket and borrows the rest from banks as debt. For all big private sector players, the government is now permitting 4:1 debt equity structures i.e. for every one rupee investment the private sector can borrow 4 rupees from the banks and financial institutions (FIs). They are therefore low equity (i.e. their own investment) and high debt companies, with debts borrowed mainly from public sector banks and FIs. On the contrary the Public Sector Enterprises have high equity and low debt. At a time, when banks are having huge funds at their disposal, the government-owned CPSEs can borrow from banks based on present debt equity position. As on date CPSEs together have roughly a debt equity ratio of 1:2 i.e. the equity is double the amount of debt. To be more precise, as per latest Public Enterprise Survey 2007-2008, CPSEs have an equity of more than Rs 6 lakh crore against a long term loan of Rs 3.2 lakh crore.  

The CPSEs, therefore, in the line of private sector can borrow safely an amount of Rs 15-20 lakh crore from the banks and FIs without shedding any equity shares i.e. without any disinvestment. Why then should they go for selling shares of a petty amount of Rs 20-30 thousand crores? Is there any economic logic?