Public assets sale and the concern of ‘fiduciary duty’
What is an asset sale
An Asset sale is where in order to unlock the value of assets, liabilities are retained by the seller either by himself or through a special purpose vehicle, and assets are sold for a competitive price, as otherwise, the liabilities will surpass the value of the assets, rendering the enterprise value to negative.
What are the points of contention in the sale of Government assets
- In a private asset sale, there are independent checks and balances, such as regulatory approvals, and the consent of the moneylenders (mostly banks) who will give their consent only when they are satisfied that seller would be able to satisfy the liabilities either from the proceeds of the sale or otherwise.
- However, in a typical asset sale by the Government, these approvals become amere formality.
- When the debt is assumed by the sovereign government, banks which are directly or indirectly controlled by the government cannot conduct due diligence independently on the nature of the sale and any report they would give would be suspect since the government has given an undertaking to repay the debt.
- The government can also force banks into a settlement with lesser repayment or even a write-off. Thus, it is citizens who will end up repaying the debts.
What are the suggestions
- We must extend the doctrine of ‘public trust’ to the management of public sector enterprises by the government.
- The government has the moral responsibility to act fairly and in a transparent manner while dealing in public assets.
- Center must consult with the states as well, especially when the matter deals with the privatisation of a major National asset.
- We must also remember that India is a mixed economy and while privatisation can increase the profit and efficiency of an enterprise, it can also lead to its collapse as seen in 1929 Great Depression.
- Thus we must learn from the teaching of Keynes, who, while recognising a profit-driven market place, advocated social welfare policy interventions such as social uplift, full employment, to ‘leash’ capitalism, and public sector enterprises (with their social obligation) play a constructive role in achieving it.