The policy reversal by the Congress government on privatising and downsizing the public sector units may have a fiscal impact on the current annual budget of Andhra Pradesh to the extent of Rs 350 crore (Rs 3.5 billion).

During the recent Assembly elections, the Congress has promised to protect the remaining public sector units from the divestment pangs.

The Divestment Development: Complete Coverage

The Chandrababu Naidu-led TDP government was voted out before it could implement half a dozen government orders issued with regard to the privitisation of four co-operative sugar mills and the downsizing of another three PSUs, namely, the Irrigation Development Corporation, the Andhra Pradesh Technology Services Corporation and the State TV and Film Development Corporation.

It is unlikely that these GOs will now be implemented by the Congress government as representations by the Left parties, the state's Public Sector Employees Federation and even by some Congress MLAs has meant that these GOs will most likely be scrapped.

Keeping in line with its promise to review the reform process, the state government has also issued orders constituting a cabinet sub-committee over the issue.

The Naidu government had in the last four years pursued a reformist agenda, which included privatisation, closure or restructuring, in 55 of the 68 PSUs.

According to government sources, stopping the privatisation of four sugar mills, upon which an SLP (special leave petition) is pending before the Supreme Court, may cost the government at least Rs 150 crore (Rs 1.5 billion) in the current year with their networth being completely eroded.

And a viable revival of these sugar mills would cost about Rs 550 crore (Rs 5.5 billion), according to the revival package prescribed by the state public enterprises department.

Even if the government puts off the privatisation of these sugar units under political compulsions it would still need to provide a lot of money to keep them afloat.

"To make these units viable, their crushing capacity has to be increased to 2,500 tonnes a day from the present 1,000 tonne capacity besides modernising them along with setting up downstream industries like distilleries," a senior official told Business Standard.

Going by the statement of chief minister Y S Rajasekhara Reddy who clarified that his government would use the means of privatisation and closure only as a last resort, it may not be the end of reforms.

But it may be difficult for the new government to use its discretion on contentious issues pertaining to public sector undertakings in the near future.

Officials are particularly concerned over the fiscal outflows rather than the losses the PSUs are expected to make in the near future. Only a credible alternative plan to revive the sick and loss making units will bring the desired change.