By Uttam Gupta
Against the `210,000 crore target set for disinvestment proceeds from Central Public Sector Undertakings (CPSUs) in FY21, the actual realisation was just about `32,000 crore. Even as the Centre may possibly clarify it away as ‘corona pandemic effect’, the prospects in FY22, when the economy is anticipated to register higher development, do not appear a lot much better. For this year, the target for speaks for itself.
Finance minister Nirmala Sitharaman has fixed the target for FY22 at `175,000 crore, substantially reduced than year ahead of. This is regardless of adding two public sector banks (PSBs) and one basic insurance coverage enterprise to the list. The lukewarm response to the disinvestment efforts final year is since of 4 important bottlenecks.
First, the Government treats CPSUs as an appendage of itself, and, by extrapolation, considers proceeds from disinvestment of its shareholding in them as a supply of income. However, in contrast to tax income, which can be projected with a degree of certainty, the very same can not be stated about proceeds from disinvestment. In this case, a lot depends on the market place situation and, in certain, the perception of investors about the PSU in which share-sale is contemplated.
For instance, throughout FY18, the government had planned sale of its 51.11% shareholding in Hindustan Petroleum Corporation Limited (HPCL) to a private investor. But, it did not get a purchaser, and towards the fag-finish of that year, i.e., January 2018, it had to ask ONGC—another CPSU in the upstream oil and gas sector—to choose up all of the shares.
Second, even right after finishing strategic sale, it desires to stay in the driver’s seat. In her Budget speech for 2019-20, Sitharaman had stated that the intent was to adjust the current policy of the government “directly” holding 51% or above in a CPSU, to one whereby its total holding, “direct” plus “indirect”, is maintained at 51%. This mindset may possibly not enthuse prospective suitors.
Third, the government spends as well a lot time on policy formulation. In early 2016, NITI Aayog had encouraged strategic sale of more than 24 CPSUs. This was not acted upon. Even now, the Budget for FY22 has only come out with broad contours of the policy for sale of PSUs in the so-known as ‘strategic’ and ‘non-strategic’ sectors. Even right after a choice is taken, it remains in a flip-flop mode.
In the case of Air India (AI), initially (FY19), the government had insisted on retaining 26% shareholding, 3 years’ lock-in period, leaving a major slice of debt on the balance sheet and retention of the workers. Since then, various adjustments have been produced. The offer you strategy at present below execution contains sale of all of its shareholding, requiring the suitor to bid for the “enterprise value”, apart from relaxation in other riders. Had this offer you been produced in the 1st round itself, AI would have been sold 3 years back, fetching a a lot much better value than what is probably now.
Fourth, the procedure is hamstrung by bureaucratic red tape. The NITI Aayog identifies providers for divestment which are then viewed as by the Core Group of Secretaries on Divestment (CGD), a extended drawn procedure by itself, which requires it to the Alternative Mechanism (AM)—a group of ministers which includes finance, road transport & highways, administrative reforms etc—for approval. After AM’s approval, Dipam moves proposal for in-principle approval of the Cabinet Committee on Economic Affairs (CCEA). All place collectively, strategic divestment entails about 12 actions.
This leads to delay, and by the time, all approvals are in location, the market place situation has undergone a drastic adjust. For instance, sale of BPCL (53.29% shareholding) was initially planned for FY20. Then, the government anticipated to realise more than `60,000 crore. But, it was not prepared then. During FY21, Covid – 19 spoilt the party. Meanwhile, there has been important worth erosion as per present valuation, the proceeds may possibly not exceed `45,000 crore.
The procedure of disinvestment desires to be unshackled. In truth, Modi will do properly to ‘debureaucratise’ the procedure of operating CPSUs. This need to be completed even ahead of privatisation is taken up.
The government may possibly set up a holding enterprise (HC)—on the lines of a bank investment enterprise (BIC) encouraged by RBI committee below P Nayak for PSBs—where all its shares in CPSUs will be vested. The HC need to be authorised to take all choices, which includes share sale to private investors, in consultation with the management. To be manned by eminent experts drawn from respective fields, the enterprise need to to be empowered and offered complete autonomy in its working.
The arrangement will place the sale procedure on speedy track, give the a lot-necessary flexibility to choose the contours and timing, taking into account market place situations and therefore maximise the proceeds. Running PSUs on lucrative lines—as extended as these stay in the government’s fold—will be an added bonus.
The author is a Delhi-based policy analyst