Modi govt disinvesting in PSUs crucial but here’s why privatisation is easier said than done

Modi government's disinvestment decision is already facing stiff opposition from employees of BPCL, Container Corporation of India, and even the Swadeshi lobby.

PM Narendra Modi with Finance Minister Nirmala Sitharaman | File photo: ANI

Finance Minister Nirmala Sitharaman announced Wednesday that the Union cabinet has approved the Narendra Modi government’s strategic stake sales in five state-run enterprises along with the transfer of management control in these firms. She also announced bringing down the government’s stake in select central public sector enterprises to less than 51 per cent. This comes at a time when the Modi government is facing flak from all quarters for its inept handling of the Indian economy. This is why the disinvestment announcement is ThePrint’s Newsmaker of the Week.

The mega disinvestment drive that has been in the works for the last few months will be crucial for the Modi government to meet its fiscal deficit target of 3.3 per cent of gross domestic product at a time when tax revenues have sharply declined and are expected to fall short of the budget targets. Tax collections till September were only at 37 per cent of the budgeted estimates, government data shows.

With slowing economic growth making the prospects of buoyant tax collections difficult, the Modi government will have to rely heavily on stake sales in state-run firms.

The government has also budgeted to collect Rs 1.05 lakh crore through disinvestment proceeds in the current fiscal year. It has, however, managed to collect only around Rs 17,364 crore so far, according to the department of investment and public asset management. This makes the current round of disinvestment even more crucial for meeting the targets.

Privatisation — easier said than done 

Besides the strategic stake sales in the five listed firms — Bharat Petroleum Corporation Limited (BPCL), the Container Corporation of India, the Shipping Corporation of India, THDC India, and the North Eastern Electric Power Corporation (NEEPCO) — the government has also proposed to sell the debt-laden national carrier Air India by the end of the fiscal year 2019-2020.

However, the privatisation of state-owned firms will be easier said than done even though the government doesn’t need any legislative changes to go through with the disinvestment.

The fear of potential job losses on account of privatisation has seen employees of BPCL stage protests in Kochi, where one of its refineries is located. The employees’ union of Container Corporation of India has also opposed the Modi government’s decision. Even the Swadeshi Jagran Manch, an affiliate of the Rashtriya Swayamsevak Sangh, is against the Modi government’s proposed plan to sell its shares in Air India.

The small time window of four months will also pose a challenge for the government to go through with the asset sales in the current fiscal.

Disinvestment — a familiar route

PM Modi’s is not the first government to bank on asset sales in state-run enterprises. The route of disinvestment has often been relied upon by successive governments to meet their fiscal deficit targets. However, except for the years 2017-18 and 2018-19, governments have fallen short of the aggressive budget targets set for asset sales year after year in the last decade.

The United Front government constituted a disinvestment commission in August 1996 under former SEBI chairman G.V. Ramakrishna to recommend firms that could either be offered for strategic sales or for small stake sales. The disinvestment process gained pace during the five-year tenure of the Atal Bihari Vajpayee government ending 2004. It was during this time that the government realised that selling a substantial stake in firms along with transferring their management control will yield better price for its stake. The Vajpayee government conducted important stake sales in firms like VSNL, Hindustan Zinc, Indian Petrochemicals Corporation Ltd, Balco, etc. The Congress-led UPA government, though, did not use the disinvestment route much in its first term. However, in its second term, it used the disinvestment route frequently to raise funds but mainly through minority sales and not through strategic sales.

The first five years of the National Democratic Alliance, led by PM Modi, saw the government raise funds through both strategic and minority sales route. However, the strategic sales were one step short of privatisation with one state-run firm acquiring the government’s stake in another state-run firm.