Strategic disinvestment (SD), a polite expression for privatisation, if carried out right, can certainly make Indian economy competitive and efficient. SD implies sale of substantial portion of the government share-holding of a public sector enterprise along with transfer of management control. It is once again being seriously considered and implemented. However, in the process, the vested and ideological interests have got fodder to depict their opposition to privatisation.
Government announced restarting of the SD programme in February 2016. Last PSU that was privatised was during the Vajpayee era. It is unfortunate that despite cabinet approval for SDs of at least 25 PSUs, beginning 2016, not one major deal has taken place so far. This is unusual for a majority government that talks big on achievements. Again in 2019, several big-ticket divestments (BPCL, Shipping Corporation of India and Container Corporation of India) have been placed on the agenda. Subsequently five PSUs － Neelachal Ispat Nigam, MMTC, NMDC, MECON and BHEL － have got in-principle approval from Cabinet for SDs. Experience this time is expected to be positive as the government is fully backing the move. But government’s willingness to pursue SDs is more out of compulsion, as it is faced with a serious funds crunch due to stressful tax and non-tax revenues situation.
Despite full support of the government, it seems difficult to meet the FY2020 disinvestment target of Rs 1.05 lakh (set in July 2019 budget) due to economy being in continuous growth slowdown mode. Collections so far have been merely Rs 17,364 crore. Sale of BPCL was expected to help meet the target but this is unlikely to materialise before March end. It would be difficult for the Centre to be able to meet its revenue targets. The Centre may have to cut back on spending. But any cut in spending is likely to aggravate the slowdown. Lower capital spending will also have implications for the plans for the infrastructure pipeline announced recently. It is credible that government is sticking to adhering to the FD target despite loud clamour being made for its relaxation in view of serious financial crunch. However, a dampener prevails that the fiscal deficit being shown is opaque which excludes off-budget transactions This needs to be corrected in the forthcoming budget.
Various reasons contributed to no major SD materialising all these years. The Swadeshi Jagran Manch (main BJP body) and some top authorities do not have faith in privatisation as witnessed in the recent uproar over the decision to revive the almost dead BSNL and MTNL. Another factor could be wrong selection of PSU for strategic sale like the case of Air India, where repeated attempts made for its sale have not succeeded. Air India suffers from massive debt burden of Rs 58,000 crore and ingrained legacy issues. Selected PSEs may have been small in terms of revenue and profit but burdened with too many employees. Bureaucracy seems to be reluctant to sign off any deal because of the fear of the three Cs － CVC, CBI, CAG and courts. On top, the Middle East crisis is likely to delay Oil PSUs, sale like in case of BPCL. No petroleum giant would loosen its purse strings in a volatile environment. Even Aramco's investments in India will get affected.
There is still hope as the Government has started thinking holistically about tackling the critical issues. PM has made a categorical statement that “the government has no business to be in business”. Government appears to have started seeing privatization in the context of economic efficiency and not as mere conduit for revenue generation to meet the fiscal deficit target.
Country’s coal mining has been finally opened to commercial mining without restrictions on end use, exports, trading etc. Even environmental clearances have been streamlined. Some weak PSUs have started working towards turning themselves profitable. State-run telecom firm MTNL has gone in for VRS scheme and started the process of its assets monetization worth Rs 23,000 crore aiming to become profitable by next fiscal. PSU banks are considering new corporate lending practice of cash flow-based lending for working capital loans as opposed to the hitherto asset-based funding model. This change is likely to make them more efficient. Profitability and Efficiency parameters mainly determine the pricing of a SD deal. Realisation has also dawned that the right price of a stock for sale cannot get determined by administrative fiat but only by the market. Private ownership alone can make the unit sustainable. Garnering resources can provide a short term perspective but revitalising PSUs for economic efficiency would be the only sustainable route for increasing not only revenues, but also profits, employment and taxes from all PSUs.
This time more profitable PSUs are on the agenda. As these are listed on the stock market, the price discovery is bound to be transparent. Blue chip PSUs － Indian Oil Corporation and Oil and Natural Gas Corporation － are being asked to take part in BPCL disinvestment. This strictly cannot be called disinvestment. May be the participation of IOC and ONGC would be a contingency measure in case of lack-luster response from prospective private bidders. BPCL’s strategic disinvestment by March 31 is crucial to the government achieving its FD target of 3.3% of GDP.
In sum, hopefully a worthwhile SD reform is in the offing. There is need for the government to provide its full political commitment to disinvestment so that the bureaucracy stands assured. The Centre, states and all other stakeholders must repair the stalling economy fast and seriously work towards making it competitive. The focus has to be not only on restarting investments but also encouraging demand-side measures. If the first deal in the current phase goes well, it will pave the path for many more.
The writer is an economist, and a former director of Economic Research & Training Foundation.
