A new policy for central public sector enterprises (CPSEs)

A new policy for central public sector enterprises (CPSEs), was announced by Finance Minister Nirmala Sitharaman in her Budget speech for 2021-22.

The policy will serve as a clear roadmap for disinvestment of government-owned firms across sectors.

The sectors goes outside government control:

The government had revealed the broad contours of the policy in May 2020 as part of the Atmanirbhar Bharat package unveiled in the initial stages of the COVID-19 pandemic.

• The strategic sectors identified at the time for retaining certain public sector entities within the government’s control remain the same in the final policy approved by the Cabinet.
• These are atomic energy, space and defence, transport and telecommunications, power, petroleum, coal and other minerals, and lastly, banking, insurance and financial services.
• While the initial plan was to retain one to four public sector firms in these sectors, this has now been replaced by the phrase “bare minimum presence”.

Bare minimum presence:

• Once the government will decide what is the ‘bare minimum number of firms’ it wants to retain, the rest of the firms will be privatised, merged or subsidiarised with other CPSEs, or closed.
• For all firms in sectors considered non-strategic, privatisation or closure are the only two options being considered.

The policy’s objective:

• The policy’s objective is to minimise the public sector’s role and create new investment space for the private sector.
• It hope that the infusion of private capital, technology and management practices will contribute to growth and new jobs.
• The proceeds from the sale of these firms would finance various government-run social sector and developmental programmes.

The Push for disinvestment:

A bold push for disinvestment of the public sector was expected soon after Prime Minister Narendra Modi assumed office in May 2014 and announced that the government had “no business to be in business”.

• However, the first term saw little activity by the government on this front, barring an aborted attempt to sell 76% of its stake in the loss-ridden national carrier Air India.
• A few public sector enterprises were merged with other PSEs and the proceeds from the transactions counted as disinvestment proceeds in the government’s accounts.

In its second innings, however, there has been some enthusiasm to privatise:

• A fresh push to sell Air India (lock stock and barrel, with 100% stake sale),
• Maharatna oil PSU Bharat Petroleum Corporation Ltd. (BPCL) and
• The likes of Shipping Corporation of India, Container Corporation of India and Pawan Hans.

Why is this significant?

The new policy is significant as it goes beyond such an approach and lays down a rationale for deciding the future ownership pattern of 439 CPSEs, including their subsidiaries.

• For instance, it is now clear that 151 public sector firms in non-strategic sectors (including 83 holding companies and 68 subsidiaries) will either be closed or sold.
• The policy also brings public sector banks and insurance entities into the disinvestment ambit for the first time.

How is this different from policies in the past?

This is the first time since 2004 that India is working on a slew of privatisation deals.

Earlier, the Atal Bihari Vajpayee government between 1999 and 2004 had managed to sell off majority stakes in a dozen-odd public sector enterprises, including Modern Foods, Balco, Hindustan Zinc, VSNL and a few hotels.

• A separate Ministry had been formed just for disinvestment to drive the process.
• An attempt to sell Air India at the time had, however, got stalled in the face of a political outcry.
• Prior to that, the early 1990s saw the stock market listing of minority stakes in a bunch of public sector firms, a policy that was replayed when the UPA government was in office from 2004 to 2014.
• The new policy goes beyond the Vajpayee-era privatisation drive, which was limited to a ‘case-by-case’ sale of entities in non-strategic sectors.
• It is stressing that even strategic sectors will have a ‘bare minimum’ presence of government-owned firms.

What is likely to be sold?

• The government hopes to conclude the sale of Air India, BPCL and some other entities, where some progress has already been made over the past year.
• Sitharaman also promised the sale of two more public sector banks and a general insurance player in her Budget speech, along with plans to list the Life Insurance Corporation (LIC) of India on the stock markets.

What are the risk factors?

• The turmoil in the global economy could impact the valuations of firms being privatised, as many potential investors may not have the appetite for bidding in these times.
• The prospect of post-deal scrutiny by audit and investigating agencies, like the CAG (Comptroller and Auditor General of India) and the CBI, will be a source of worry for officials, with similar cases pertaining to the Vajpayee-era transactions still cropping up in courts.

Conclusion:

Lastly, the economists has warned, privatisation is a good idea, but doing it during a recession may dampen economic recovery as investors will end up buying existing capacities instead of embarking on fresh investments.

Source: The Hindu