Despite decades of platitudes and rhetoric on the sale of loss-making public sector companies from successive governments at the Centre, there hasn’t been much movement forward. However, irrespective of which party or coalition forms the new government at the Centre now, the priority this time around is likely to be to carry out the pending proposals for strategic sales of these units to their logical conclusion.
So far, a number of loss-making PSUs have been identified by the Union government for privatisation through strategic sale of stakes, but these proposals have failed to take off. However, top officials say that this time around, the intent is quite clear and such measures are not likely to be opposed politically.
Earlier this month, in the midst of the polling season, the government came out with a notice seeking bids to sell its 98.11 per cent stake in the Almora-based pharma company — Indian Medicines Pharmaceutical Corporation Ltd —which was into manufacturing both generic and ayurvedic drugs. The Expressions of Interest are to be submitted by June 10, 2019, according to the official notice. Officials say that the drug maker has been lying shut for some time, but could be of interest to both Indian and multinational companies interested in entering the field of ayurveda.
Divestment proposals for several other PSUs, including Calcutta-based Bridge & Roof, Pawan Hans Corporation etc., are known to be in the pipeline. Sharing his expectations for the next government, Indian-American economist and former Vice-Chairman of Niti Aayog Arvind Panagariya recently said that the focus should be on aggressive privatisation of PSUs to fuel growth and resolve the bigger problem of unemployment.
“Privatise Air India,” he insisted, adding that the government should privatise one PSU every week. Panagariya believes this was feasible because over two-dozen such companies already had a cabinet approval to be privatised. Scores of other PSUs that were lined up for a strategic stake sale, but escaped privatisation, are estimated to have lost a whopping Rs 12.8 lakh crore in valuation since 2014. Worse, they continue to accumulate losses worth thousands of crores of rupees.
Analysts point out that the fact that the task of identifying candidates for strategic sales and re-framing of policy objectives were farmed out to NITI Aayog, the government’s think tank, had indicated that bureaucrats had developed cold feet: the failed attempt at selling struggling national carrier Air India and the reluctance to sell BSNL being some of the prime examples. In fact, BSNL and Air India together account for 52 per cent of the Rs 25,181 crore losses incurred by 52 loss-making PSUs in 2017-18, according to official data.
Department of Investment and Public Asset Management (DIPAM) officials explained that any loss making company involved in a business which was neither in the core sector nor an essential for the government to be would figure in any list which was drawn up. “There is more or less political consensus in this and there is little economic logic for keeping these firms,” said officials.
To bite the privatisation bullet, the new government might as well take a cue from the policy of strategic disinvestment as a public sector reform that dates back to 1999-2004, when the Atal Bihari Vajpayee-led NDA was in power. Vajpayee embarked on a course correction with his famous declaration in Parliament: “Privatisation is the only panacea for ills of loss-making public sector undertakings”.
To put things into perspective, nearly half of the 242 CPSEs at that time were making losses and a quarter were classified as sick. Yet, that government’s success is reflected in the sheer number of privatisation deals which were closed, including the likes of Hindustan Zinc, 17 ITDC hotels, Videsh Sanchar Nigam Limited and Maruti. While these also faced steep resistance from the opposition, the government managed to fetch Rs 37,000 crore through strategic sales of various CPSEs during the five years, and today, these companies continues to run efficiently under private hands. However, privatisation attempts have not worked as well again — either during the UPA’s 10 years in power or the subsequent NDA government.
What sets apart the disinvestment process under Vajpayee was the fact that it was a deliberate attempt to unlock value in loss-making firms by selling them to private companies and not a step taken under financial distress. In stark contrast, the Modi government has precious little to show in terms of exiting loss-making entities. The disinvestment figures also suggest that the government is caught between caution and the pressures of fiscal goals.
Of the Rs 84,972 crore realised in FY19, most of the receipts came through novel mechanisms such as exchange traded funds and share buybacks. Even as the incumbent government continues to offload small parts of the government’s stakes in public markets, retaining control and principal ownership, it remains unclear if the new government will be able to make much headway in the current fiscal.