Outlook – July 20, 2019

26 OUTLOOK 22 July 2019

MARKET WATCH

Govt goes for Rs 1.05 lakh crore disinvestment target. Will it really help ailing PSUs like Air India?

D Company A nd India Inc.

by Lola Nayar

I

T’S the D -word that has obsessed

the Indian government for the past

three decades. But none made dis-

investment—the sale of govern-

ment stake in public sector units

(PSUs)—as much a priority as

Prime Minister Narendra Modi in his

two terms since coming to power for

the first time in 2014. Almost perfect-

ing the art of monetising PSU assets,

the first Modi government raised Rs

2.8 lakh crore from disinvestment pro-

ceeds. For the current fiscal, his gov-

ernment has set the bar even higher,

going for an ambitious target of over

Rs 1.05 lakh crore in 2019-2020. The

government has identified more than

two dozen central PSUs for disinvest-

ment, including the debt-ridden Air

India which found no buyers last year.

Experts and economists, however, say

that the disinvestment process has nei-

ther helped PSUs whose shares were sold,

nor the government which wished to get

out of the business of being in business,

or the investors, both institutional and

smaller ones. In most cases, they point

out, various governments sold stakes in

PSUs to other PSUs. It became a mecha-

nism for the Centre to raise funds but the

money hasn’t been used to create infra-

structure or make PSUs efficient.

Finance minister Nirmala Sitharaman

hopes to focus on strategic sales, i.e. sell-

ing shares to private enterprises. The

government has announced plans to

cede management control by allowing

strategic investors to own up to 49 per

cent stake on a case-by-case basis. This is

because the stake of other PSUs along

with government’s direct holdings will

together form the basis to calculate the 51

per cent majority, in case the government

wishes to retain management control.

The government has begun the exercise

to appoint consultants for the dilution of

stakes, as also identify assets of PSUs that

may be monetised to raise resources.

Over the years, the contours of disin-

vestment have undergone drastic chan-

ges. The original objective of setting up a

national investment fund or a special

purpose fund—where the disinvestment

proceeds from stake sale or outright sale

of loss-making PSUs would be pooled for

modernising and expanding profit-mak-

ing public sector enterprises—seems to

have been lost. “Now, disinvestment has

ONGC buys 51.11% govt

stake in HPCL

Acquisition cost:

Rs 36,915 cr

Reason: Creation of global oil giant

Reality: Operations remain

separate; minimal synergies

Proposed NTPC-SJVN deal

Acquisition cost:

Rs 8,000 cr

Reason: Enhance non-thermal

portfolio

Reality: Himachal Pradesh against it

become a non-debt creating capital rec-

eipt (NDCR). The original plan of creat-

ing a special fund for improvement of

PSUs has been forgotten and the NDCR

has become part of the budget,” says

Professor C.P. Chandrasekhar, Centre for

Economic Studies and Planning, JNU.

“The disinvestment proceeds are now

being used for balancing and keeping

fiscal deficit under control and to finance

current expenses. The disinvestment

money has hardly been used for any res-

tructuring purpose.”

While critics of India’s disinvestment

programme liken it to selling of family

silver to bridge fiscal deficit or rein it, N.R.

Bhanumurthy, professor at National

Institute of Public Finance and Policy,

likens it to selling old gold to buy new gold

jewellery. “What we are seeing in the

budget is more than disinvestment,” he

explains. “The projected numbers in the

budget is indicative of the government

resolve to now look beyond disinvest-

ment to monetising land and other assets

of public sector companies like in the case

of the railways. It is basically selling their

assets and increasing their investments.

For instance, Rs 50 lakh crore is envisaged

as the requirement of the railways. Large

part of it is expected to be fin anced

through railways assets sale.”

India has had a mix of disinvestment

models—including outright sale, part

Disinvestment: Targets and Achievements

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

40,000.00

30,000.00

40,000.00

15,819.00

43,425.00

24,349.00

41,000.00*

23,997.00

56,500.00**

46,246.58***

1,00,000.00

1,00,056.91

80,000.00

84,972.16

1,05,000.00

13,894.00

23,957.00

Target (Rs Cr) Achievement (Rs Cr)

*excluding strategic disinvest-

ment of Rs 28,500 crore

** including Rs 36,000 crore as

disinvestment of CPSEs and

Rs. 20,500 crore from strategic

disinvestment

***including Rs 35,467.87

crore from disinvestment of

CPSEs and Rs 10,778.71 crore

from disinvestment of strate-

gic holdings and income from

management of SUUTI

investment