Will They Sell?

Neither has Air India been sold, nor BPCL and neither a stake in LIC, all of which were expected to be this year’s big ticket transactions.

With a rising need for funds an account of covid, defence, infrastructure etc. and tax collections not upto the mark, the government needs to sell its stakes in PSUs, not just to raise funds, but to also stop their losses, which are a constant drain on the public exchequer.

India has about 200 central PSUs, of which 55 are listed, but in aggregate they give a negative return on the huge amounts invested in them. Even the listed PSUs have failed to increase public wealth. From its start in Jan 2008, to now, the BSE PSU Index has fallen by 40%, while the Sensex has multiplied a couple of times and more. Listed PSU prices stand at historic lows, with little investor interest or confidence in them, at a time when stock markets have been booming. As against a disinvestment target of Rs. 2.1 lac cr. this FY, so far just about Rs. 18000 cr. have been raised, of which Rs. 13000 cr. is from Offer For Sale (OFS) related to SAIL, Bharat Dynamics, HAL and IRCTC. Neither has Air India been sold, nor BPCL and neither a stake in LIC, all of which were expected to be this year’s big ticket transactions.

With PSUs being wealth destroyers and the treasury being empty, the government desperately seeks to ramp up its disinvestment proceeds, through sale of PSUs. While in the earlier years, in 2018 and 2019 in particular, the government achieved its disinvestment targets, by compelling one PSU to buy another, such as ONGC buying HPCL for Rs. 37400 cr. and PFC buying REC for Rs. 14000 cr. that option has now lost steam and is no longer available, or else BPCL and IDBI Bank would have been certainly sold in this manner, in the current FY.

The PSUs continue to bleed losses in various ways. The combined losses of just BSNL, MTNL and Air India, in FY 2018-19 totalled Rs. 27369 cr. and while the government has raised about Rs. 13000 cr. from OFS of 4 PSUs this year, showing a deficit and not a surplus in such proceeds.

The fact is that sale of PSUs is the final frontier for a cash strapped government, apart from indiscriminate borrowing, which it has prudently avoided so far. The government can raise about Rs. 2.8 lac crores, by bringing down its stake to 26% in listed PSUs and can similarly raise Rs. 1.10 lac crores in the case of unlisted PSUs.

It is for these reasons that the government has announced in May 2020, that it will formulate a PSU policy as part of its Atmanirbhar Bharat initiatives. While the policy then was not announced by the FM, she however said that PSUs will be classified into strategic and non strategic; the government will privatise all non strategic PSUs and will retain stake in just about one to four PSUs in the strategic sectors. Reports say that the government has approved the PSU policy in its Cabinet meeting yesterday and that the FM will announce it together with the forthcoming budget.

While it appears from the announcement that a path breaking disinvestment/privatisation policy announcement seems to be on the cards, which we hope is realistic and factors in the ground realities, it is worth bearing in mind, the following factors that have been obstacles to it and have made it a non starter :-

1) Political opposition and militant trade unions.
2) Unrealistic offers and valuations by the government.
3) Poor homework and inadequate study to formulate the offer.
4) Unwillingness to relinquish control of the entity.
5) Labour/staff retention.
6) Government guarantees for debt raised.
7) Uncertainty about continuity of business.

The economy maybe in green shoots according to the government and is getting back to normal as per it, but the fact is that without funds to spend and invest, particularly in infrastructure projects, the economy will continue to limp, as it has been in the past few years. Apart from generating funds, privatisation/disinvestment can also ensure that unproductive and loss making government assets are transformed into productive and profitable ones and to do that, the government needs to take an inclusive approach, something that it does not believe in.