PUBLIC sector disinvestment has remained a low-key affair for the past two decades. Coalition pressures have prevented successive governments from continuing with the privatisation process that had begun in right earnest during the Vajpayee era. The allegation that the jewels in the nation’s crown were being sold off was levelled every time efforts were made to revive privatisation schemes. This government thus crossed the Rubicon, in a sense, by dispensing with the term ‘disinvestment’ and boldly referring to privatisation in the 2021-22 Budget. It went ahead to outline ambitious plans and laid out a virtual laundry list of public sector undertakings that needed to be sold outright.
The reasons for going ahead right now with this long-awaited economic reform are clearly two-fold. One is the urgent need to garner resources at a time when the Covid pandemic has created a serious resource crunch for the exchequer. The target of 1.75 lakh crore for the current fiscal, if achieved, could provide the much-needed cushion at a time of crisis. Two, the focus on the pandemic has meant that it is the ideal time to push through a much-needed reform that has been kept on hold for too long and is bound to unleash productive capacities in the long run. The timing has improved further as the disinvestment process has been pushed into the background with the focus of debate now being the asset monetisation policy that has evoked considerable controversy.
The privatisation or disinvestment process, as it is euphemistically described, has been proceeding in many cases without too much of fanfare. In fact, reports indicate that progress has been made in the case of relatively smaller companies. These include Balmer Lawrie, the Container Corporation of India and the Shipping Corporation of India which look set to be sold off by the end of the current fiscal.
On the other hand, doubts remain over whether the two giants selected for privatisation — Air India and Bharat Petroleum Corporation Limited — will actually be sold this year. Efforts are being made to sweeten the deal repeatedly for buyers of the national carrier, the latest being the transfer of its capital assets to a holding company along with tax relief. The tax authorities are also allowing public sector companies slated for disinvestment to carry forward losses. The need to make the deal more attractive has arisen as prospective buyers for the airline are scarce, many scared away by the company’s huge debt overhang. This is despite the fact that a major chunk of the debt burden has been shifted to an SPV (special purpose vehicle). Even so, this remains a concern for the few players interested in taking on the airline.
The BPCL privatisation process is in a different category, being a profit-making oil refining and marketing company for which there are multiple bidders. Initial estimates indicate the company may yield Rs 52,000 crore, but the process of disinvestment is slower than expected as it was meant to be finalised by the end of the July-September quarter. Clearly, the issue of tardy action on disinvestment continues in the current fiscal as in the past few years.
As for the banking and insurance sector, voices of doubt are emerging on the need for privatisation. The former Reserve Bank of India Governor Raghuram Rajan has suggested improving governance instead and privatising through public issues as was done for the ICICI Bank. He has argued there is enough competition for the private sector in banking while there is also need for the public sector, provided it is not handicapped or given privilege.
Others have also pointed to the history of banking in this country prior to nationalisation when there was a spate of bank failures. It is undoubtedly true that it is only public sector banks that have gone to rural areas and spread the banking networks in remote regions. They have also made it possible for the poorest to open bank accounts with minimum balance in accounts. While inefficiencies in government banks are legion, they have been hamstrung by the weight of social obligations that private banks do not have to bear.
Given the renewed debate on this issue, bank privatisation may move more slowly than in other areas. But even Rajan concedes indirectly, that the government needs to move out from many areas of the public sector. For instance, there is no need for it to be in the business of making watches, that is, HMT.
The fact that the government should not be in the business of business is a concept that has been debated and discussed literally for decades. Even when Rajiv Gandhi was the Prime Minister in the mid-80s, it had been accepted that many public sector companies were simply a drag on resources and needed to be sold off. A list was made then of loss-making companies that needed to be divested from government control. Political compulsions, however, led to these ideas remaining on the shelf by successive governments. It was finally the United Front government that decided to appoint a Disinvestment Commission headed by the late GV Ramakrishna. It submitted a series of reports that set the stage for the strategic sales carried out by the Vajpayee-led NDA. Subsequently, the UPA brought such sales to a halt.
The success of this particular initiative thus depends largely on the ruling dispensation’s ability to shed its political inhibitions in the area of disinvestment. For a government that has had a commanding majority in the legislature, both in its first and second term, it has taken a long time to actually go ahead with the challenging task of privatisation. It must not waver in implementing most of the plans outlined for partial sale of government shareholding as well as outright privatisation of companies. At the same time, it should listen to cautionary advice before proceeding to sell public sector banks as the need for better governance in these institutions is undeniable. Public sector disinvestment is a worthy goal, but needs to be carried out in a thoughtful and nuanced way.
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