By Nageshwar Patnaik in Bhubaneswar, December 1, 2020: The Narendra Modi government has set a stiff public sector units (PSU) disinvestment target of Rs 2.1 lakh crore for FY 2020-21. The government needs money badly post economic slowdown and the COVID-19 pandemic crises and in swift move, the Union Cabinet cleared the stake sale of about 26 PSUs to mop up some finances.

The moot question, however, is the timing of disinvestment move. Divestment during such a dicey phase of the economy will not fetch the government the right valuation of these PSUs. Many experts have opined against PSU disinvestment in these crisis times.

The Modi government has had a strategic disinvestment approach i.e to sell minority stakes in public companies to raise revenue. The dismantling of the PSUs began during his first tenure ending up with disinvestment of seven PSUs while in the second tenure of NDA; as many as 23 PSUs have been disinvested.

The NDA government has mopped up Rs 2,80,490 crore during 2014-19 compared to Rs 1,05,529 crore during the tenure of Manmohan Singh led UPA government (2009-14).

However, the Modi government has gone a step further by making a paradigm shift from the strategic disinvestment policy to privatization of PSUs and that raises questions on the objective behind PSU reforms. Recently, five companies were up for 100 per cent disinvestment, including three large profitable companies such as Bharat Petroleum Corporation Ltd. (BPCL), the Container Corporation of India and the Shipping Corporation.

So far in this fiscal, the NDA government has raised Rs 61,138 crore and plans to raise Rs 90,000 crore through divestment in the Life Insurance Corporation (LIC) and IDBI and Rs 1.2 lakh crore through other disinvestments.

It is needless to say that indiscriminate selling of public assets will not augur well for the nation. The government claims that the PSU reforms represent a directional shift aimed at freeing the economy from the socialist baggage of the past.

However, in a developing country like India, there is a strong case for retaining the government control in strategic sectors. It is crucial to put in place measures to prevent exploitation of monopoly power and wider social costs in the privatisation process.

Besides, PSU disinvestment at this critical juncture remains unattractive to investors. The share of public sector firms and banks in the total market capitalisation of all listed companies on BSE has also fallen sharply by 15 per cent from 23 per cent in May 2014 to around eight per cent in 2020.

Moreover, PSUs have seen significant erosion in their market value since the NDA came to power in 2014. Their current market capital is Rs 12.2 lakh crore, down Rs 6.9 lakh crore from May 2014 at Rs 19.1 lakh crore.

Take the case of Air India, for which no investor has shown interest to acquire it as the airline is grounded to a level where it cannot be revived further. In January, the government set a deadline of March 17 to sell its 100 per cent stake in Air India. Even then there were no takers and since then, the deadline has been extended several times. Now the government also amended the preliminary information memorandum recently to attract buyers.

It is certain that Air India will not have any takers as aviation is not going to recover until 2021. Several airlines are also sinking and in situations like these, there will be no buyer unless the government resorts to distress sale.

The government recently put up five companies for 100 per cent disinvestment, including three large profitable companies such as Bharat Petroleum Corporation Ltd. (BPCL), the Container Corporation of India and the Shipping Corporation.

The government is planning to sell 53.29 per cent stake in profitable BPCL to a strategic buyer, basically providing the management control to a private party. The planned disinvestment of these big three is in addition to the proposed 100 per cent sale of Air India, and Industrial Development Bank of India (IDBI).

What has shocked most is the move to divest the insurance behemoth Life Insurance Corporation (LIC), a largest company in terms of assets despite its strategic role in the Indian economy. Finance Minister justifies the move saying that it will give access to capital, unlock the embedded value of LIC, provide retail investors with a pie in the profit of LIC and bring additional discipline in the organisation.

With an average of Rs 5- 6 lakh crore of total annual income, the insurer is capable of meeting the needs of successive governments by funding almost a fourth of the Centre’s annual Budget outlay. LIC continues to be a dominant financial intermediary in the country, channeling investible funds to productive sectors. Furthermore, LIC is one of the remaining profit entities owned by the state, and the government is trying to harm the goose that lays the golden egg.

Many may wonder about the objectives of these sales. Privatization may be a magic solution to raise revenues, but it is a tamed tiger. It would be better for India to learn lessons from the experiences of China and Singapore in using PSUs strategically than simply selling them off. The draft industrial policy 2019, which is not yet made public, aims transformation of Indian industry to take advantage of new technologies.

There is a strong case for retaining the government control in strategic sectors. The COVID-19 pandemic raises the need for a new approach towards the public sector, at least in the strategic sectors such as the pharmaceutical industry which is of vital importance to public health.

The NDA government should analyze the genuine concerns over such unabashed privatisation moves and have a re-look at the move to sell off the PSUs to raise resources.

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