Will 2017-18 be a watershed year for CPSE disinvestment?

Central Public Sector Enterprises Disinvestment by Manish Marwah

Privatization came to a grinding halt after the Congress party-led government came to power at the Centre in 2004. The then Manmohan Singh government lacked courage to bite the bullet on restructuring central public sector enterprise (CPSEs) in a rapidly evolving global economic environment.

A cursory look at the 235 operating CPSEs would prompt one to ask why is the government in the businesses such as hotel and transport services (other than railways), in a market-driven economy. The CPSEs were created when there was hardly any private sector in the socialist era post independence. Most of them have lost relevance now.

That was the reason why the National Democratic Alliance (NDA) government led by Atal Bihari Vajpayee pushed privatisation 13-years ago. It managed to privatise more than a dozen CPSEs to private companies, the most notable ones being Indian Petrochemicals Corporation, which was sold to Reliance Industries, and Bharat Aluminium Company and Hindustan Zinc, both of which went to Vedanta Resources. It also sold 18 ITDC hotels during 1999-2004, bringing down the number of state-run hotels from 34 to 16.

Scarce resources can’t and shouldn’t be used to sustain CPSEs, 77 of which made a net loss of Rs 27,360 crore in FY15, up from Rs 21,314 crore in the previous year. Even after infusing Rs 24,725 crore in loss-making Air India under an ongoing revival package, the national carrier alone has a debt of Rs 50,000 crore. Who will repay that? Also, don’t forget the Centre has been implementing financial assistance to other ailing CPSEs to the tune of Rs 41,000 crore since 2008-09.

Since tax payers’ money is required for developmental projects now, another NDA government led by Narendra Modi is attempting again to purge the big-and-fat public sector. It has spelt out a new policy for disinvestment and strategic sales of CPSEs. Thanks to this change in policy, it is on course to raise nearly Rs 45,500 crore in disinvestment revenue in 2016-17, a historical high. That’s too after failing to make a single strategic sale as the process takes at least six months to materialise. A number of strategic sales are now expected to be executed in 2017-18. The department of investment and public asset management (DIPAM) has made a significant progress in preparatory work for outright sale/privatisation about 20 CPSEs. These include Bharat Earth Movers, Scooters India, Pawan Hans, units of Cement Corporation of India, SAIL units (at Bhadrawati, Salem and Durgapur).

Besides strategic sales, the government is also working on consolidating of CPSEs in sectors that have multiple players. If the grapevine is to be believed, country’s largest oil explorer ONGC may acquire government’s 51% stake in oil retailer HPCL in a cash plus equity deal. While the transaction would fetch a handsome amount in disinvestment revenue to the Centre, it would also create a globally competitive integrated public sector oil firm. Besides privatization, the government is also fast-tracking closure of about two dozen sick units, to cut losses.

It could well be a watershed year for disinvestment of CPSEs if the government achieves 2017-18 divestment target at Rs 72,500 crore, a 60% jump year-on-year. The method of CPSE disinvestment could range from strategic sales and IPOs to the sale of the government’s SUUTI (Specified Undertaking of the Unit Trust of India) stakes and further pruning of Centre’s stakes in certain big CPSEs like BHEL and Nalco, buybacks of shares by CPSEs and a proposed new CPSE exchange traded fund.

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