A Privatization Plan That Heralds The Rise Of The Indian Elephant

Context: Implementation of privatisation in true letter and spirit could prove to be a game changer for our economy just as the 1991 reforms were.

Recent steps towards privatisation:

• 31 PSEs have so far got the Union cabinet’s ‘in-principle approval’ for privatization.
• BPCL, Air India, Shipping Corp of India, Container Corp of India, IDBI Bank, BEML, Pawan Hans and Neelachal Ispat Nigam Ltd, among others, are expected to go under the hammer in 2021-22.

Significant feature of India’s Disinvestment Policy: through Budget 2021-22

• Increased target collection: of Rs 1.75 trillion from disinvestment receipts in 2021-22,
• Government has “no business to be in business":
  • In 4 strategic sectors - atomic energy and defence, transport and telecommunications, power and petroleum, and banking/insurance, there will be a bare minimum presence of PSEs.
  • PSEs in non-strategic sectors will either be fully privatized or closed down.
• Improving competencies within enterprises + building of resource efficiency:
  • As per a Confederation of Indian Industry analysis, the cumulative losses of the 55 non-strategic central PSEs (listed and unlisted) in the three years from 2016-19 stood at Rs 45,748 crore.
  • The Economic Survey 2019-20 also affirmed better performance by privatized central PSEs, in terms of net worth, net profit, return on assets (RoA), return on equity (RoE), gross revenue, net profit margin, sales growth and gross profit per employee.
• Plug revenue gap: by freeing up government capital and management bandwidth for more productive deployment.
  • This will prove useful in financing the 34.5% rise in the budgeted capital expenditure in 2021-22, having multiplier effects on the economy.

Way Forward

• Enable better monitoring: Government shall draw a list of PSEs in which it intends to bring down its share of ownership below 51%, or disinvest fully, in advance.
  • This will help improve their valuations before the actual selling of equity begin.
  • Prioritize Privatization of non-strategic PSEs: listed on stock market, as they are relatively easy to offload due to publicly-known valuations.
• Improve quality of receipts from disinvestment: through genuine stake sales rather than resorting to moves that where one PSE buys another.
  • The government should also define principles of corporate governance for PSEs, especially for those which are not listed.