The Centre should de-bureaucratise the process of running PSUs. This should be done even before privatisation is taken up
Under a big bang approach to privatisation announced in the Union Budget, Finance Minister Nirmala Sitharaman has divided the Central Public Sector Undertakings (CPSUs) in two broad categories i.e. strategic and non-strategic. Whereas the former is broken up into four subgroups: Atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services, the latter includes all other sectors such as hotel and tourist services, industrial and consumer goods, trading, marketing and so on. As per the plan, all PSUs in non-strategic sectors will be privatised and all loss-making enterprises in this category will be closed. In the strategic sector, too, the Government will be open to privatisation with the caveat that at least one undertaking (and a maximum of four) will be retained in the public sector.
When seen in the backdrop of the Union Government having made an indiscriminate entry in almost every conceivable business activity, including areas such as hotel and tourist services where it had no business to be present in the first place, any initiative aimed at exiting from all of these is welcome. This has the potential to unlock value and generate huge revenue because of the high valuation that the real estate and properties under these PSUs command. As regards the strategic sector, though the Government does not rule out privatisation, the caveat of retaining a maximum of four undertakings in the public sector can defeat the purpose. For instance, currently there are around 12 oil PSUs ranging from upstream oil producers like the ONGC and OIL to downstream oil refining and fuel marketing firms IOC, BPCL and HPCL to gas transporter GAIL India Limited and engineering firm Engineers India Limited. These 12 could be consolidated into four behemoths through a process of merger and amalgamation, leaving no space for privatisation whatsoever.
Why does the Government want to put this caveat? What does it fear? Sans this, will it compromise national interest? In the above example, consider an extreme scenario, in which there is not even one PSU and the entire oil and gas space is occupied by private enterprises. Are we to infer that this will compromise India’s energy security? If this were to be the case, then why not reserve this sector exclusively for PSUs? Why allow even one private company? This line of argument is bizarre. For ensuring security in strategic items, the critical requirement is to have a minimum number of companies to ensure there is adequate competition and supply in the market. Who those firms are —whether owned by private promoters or the Government — should not matter.
In the 1970s-80s, when India needed to develop these sectors and private players were unwilling to invest, it made sense for the Government to take the lead. Since then, lot of water has flown down the Ganga. Currently, there is considerable interest among private investors and the Government itself is inviting them. Therefore, any arbitrary restriction should be avoided. Any decision to privatise a PSU should be taken on the merit of each case, irrespective of whether it is in a strategic or non-strategic area. Likewise, the mandatory closure of any loss-making enterprise should apply to all such entities without any distinction. National security concerns are always best addressed through strong, resilient and responsive regulatory and surveillance mechanisms.
Implementation is far more important than the policy. In this regard, the score of the Modi Government during the last seven years or so (it was pursued under a sophisticated nomenclature ‘strategic disinvestment’) has been disappointing. Except for two big ticket sales like the divestment of its 51.11 per cent shareholding in HPCL in 2017-18 and 52.63 per cent stake in the REC in 2018-19, there is nothing much to show. Even these sales can’t be termed as privatisation as the buyers were ONGC and PFC respectively — both PSUs.
As per the original plan, 51.11 per cent shares of the Union Government in HPCL were to be sold to a private investor. But things did not pan out as planned and in January 2018, the Government had to ask ONGC to pick up the entire stake, as it desperately needed money to meet the fiscal deficit (FD) target. In the case of REC too, it asked the PFC to buy. During 2018-19, Air India was also put on the block but failed.
During 2019-20, besides resurrecting that offer, the Government also took up sale of all of its shareholding in BPCL (53.29 per cent); ConCor (30 per cent); SCI (63.75) per cent; NEEPCO (100 per cent) and THDC India Limited (75 per cent). Sans NEEPCO and THDC which were sold to NTPC — a CPSU in the power sector — others made no progress. During 2020-21, Covid-19 spoilt the party. For 2021-22, there is not much hope either. The target for proceeds for disinvestment speaks for itself. At Rs 1,75,000 crore, this is substantially lower than the target for 2020-21 (Rs 2,10,000 crore). This is despite adding two Public Sector Banks (PSBs) and one general insurance company to the list of those (Air India, BPCL, SCI, ConCor, LIC) already under the hammer. The mandarins in the Finance Ministry have sensed that some disinvestments may not go through, others would fetch lower valuation.
There are four major bottlenecks in the way like policy flip-flops (it stymied Air India’s sale in 2018-19/2019-20); bureaucratic red tape (but for this, HPCL could have got a private suitor and BPCL’s sale could have happened in 2019/20); thrusting decisions on PSU Boards under a typical top-down approach; linking share sale to meeting the FD target. The last two reasons have the inevitable effect of delaying and reducing realisation from every sale.
The Budget offers nothing to address any of these bottlenecks. Under a business as usual approach, it will take several years, if not decades, for the sale process to get completed. The decision to set up an empowered group of secretaries to address the concerns of potential investors won’t be of much help as even under this arrangement, bureaucrats will continue to rule the roost.
The Centre should de-bureaucratise the process of running PSUs. This should be done even before privatisation is taken up. The Government may set up a holding company — on the lines of a bank investment company recommended by an RBI committee under P Nayak — where all its shares in PSUs will be vested. It should authorise the holding company to take all decisions, including share sale to private investors, in consultation with the management. To be manned by eminent professionals drawn from respective fields, the company should to be given full autonomy in its working.
This mechanism will also help in de-linking divestment from the Budget exercise and give much- needed flexibility to the holding company to decide the contours and timing of sale, taking into account the market conditions so as to maximise the proceeds from sales.
The writer is a New Delhi-based policy analyst. The views expressed are personal.
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