Much at stake

The cabinet's approval of a 10 per cent disinvestment in Hindustan Aeronautics Limited is a long overdue step to encourage capital inflow into strategic sectors like defence. The government's ability to finance defence, atomic energy and other strategic needs will soon hit a wall, when the tight fiscal deficit rules come in. There is no option but to source capital from elsewhere, if they are to be modernised.

Yet, the government has been squeamish about even partially relinquishing its grip on these sectors. The only defence-related public sector unit that is listed in the Bombay Stock Exchange is Bharat Electronics Limited. The decision to disinvest in this unit was taken in 1993, in the first flush of reforms in Indian public sector companies. In the two decades since, no other company in the atomic, space or defence sectors has been touched, though there are no reasons why minority stakes cannot be sold off. There are several PSUs in this sector that suffer because of this inertia. The revelations in the Bharat Earth Movers-Tatra deal show that most of these companies operate as local assembling agents for foreign manufacturers. Hindustan Aeronautics is also a case in point, its plans to develop an indigenous aircraft have never moved beyond the drawing board. And yet, in planning to finance such a complex operation, it seems to never have been troubled by its remarkably low equity base of Rs 120 crore. After all, it has no significant investment plan that would need debt or additional equity to finance. Technology transfers for imported aircraft are financed through the government of India's budget. The company has, instead, built up a phenomenal cash balance of Rs 20,099 crore. The interest income is enough to keep its profit soaring to Rs 2,839 crore, as on March 31, 2011. Of the total profit, investment income accounted for 47 per cent. Unsurprisingly, the company has no debt, despite working in a capital-intensive sector.

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