India at 75: What's the way ahead for govt on privatisation, asset sales

While the govt has secured a big win by privatising Air India, it is still far from its initial goal of privatising majority of PSUs

On October 8, 2021, after two previous failed attempts, the centre finally announced the sale of Air India. 68 years after the sovereign had nationalised the Maharaja, it would be sold to its original owner, Tata Sons.

This was good news for the beleaguered loss-making carrier, which can now be managed more efficiently, and for the exchequer, which was funding it for decades.

The sale of Air India to the Tatas also provided a big boost to the Narendra Modi administration’s pro-reforms credentials. It was, after all, the first privatisation of a state-owned company in 17 years.

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Modi has made privatisation and asset sales of state-owned companies one of the cornerstones of his reform policies, having stated in 2014 that the government has no business operating PSUs in certain sectors.

The first attempts to reverse decades of nationalisation were carried out by former Prime Minister Atal Bihari Vajpayee. Between 1999 and 2004, his government managed to sell as many as 12 PSUs, despite strong opposition from within the government, the larger Sangh Parivar, and bureaucracy.

A separate Ministry of Disinvestment under Arun Shourie implemented these sales. That ministry is now the Department of Investment and Public Asset Management (DIPAM) under the Finance Minister.

The PSUs which Vajpayee privatised were Modern Foods, Maruti Udyog, Bharat Aluminium Co (BALCO), CMC Ltd, Hindustan Teleprinters, Hindustan Zinc, Indian Petrochemicals, Jessop and Co, Lagan Jute Machinery, Paradeep Phosphates and Videsh Sanchar Nigam Ltd (VSNL).

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While minority stake sales and initial public offerings of PSUs happened during the ten years of the Manmohan Singh government and in Modi’s first term, no privatisation was carried out. Between 2014 and 2019, the centre did shore up divestment numbers by merging PSUs. In 2017-18 for example, ONGC acquired the centre’s 51 per cent stake in HPCL for Rs 36,900 crore and helped DIPAM garner a record Rs 1 trillion in divestment proceeds.

The Way Ahead

Since 2019, the centre has had plans to privatise PSUs like Concor, Shipping Corp, Pawan Hans, Central Electronics Ltd, BEML and others. In fact, another privatisation, that of Neelanchal Ispat Nigam Ltd, has also been completed, the company being sold to Tata Steel Long Products Ltd.

The centre did announce the sale of Pawan Hans to a consortium earlier this year but scrapped it later as questions of impropriety and non-payment of dues were raised regarding a company, which was part of the consortium. This was for an unrelated bankruptcy and resolution matter.

Oil retailing behemoth Bharat Petroleum was also a big part of the centre’s privatisation plans but has now been scrapped owing to market conditions. In fact, before the Covid-19 pandemic, the centre was more confident about selling BPCL at a hefty premium, than it was about getting Air India off its hands.

Going ahead, the centre has identified a number of strategic sectors, in which the government will continue operating a few PSUs. These are atomic energy, space, defence, transport and telecommunications, power, petroleum, coal and other minerals, banking, insurance and financial services.

In all other sectors, the government plans to completely exit, though there is no fixed timeline of when these privatisation moves will take place. Even in the strategic sectors, the centre plans to maintain a minimum presence. Work is being done to privatise two public sector banks and one general insurance company. Though a lot also depends on political pressures.

An even more important aspect of the centre’s plans is asset sales, more specifically the National Monetization Pipeline. Under this, Rs 6 trillion worth of assets will continue to be owned by the departments and PSUs but will be leased out to and operated by the private sector. Essentially, the NMP is another version of Public-Private Partnerships.

The biggest contribution of NMP is expected to come from the roads sector, as the chart shows, followed by railways, power, transmission and power generation. In fact, infrastructure investment trusts (InvITs) have already been launched by the National Highways Authority of India and PowerGrid and similar opportunities are being examined for other sectors.
 

There are concerns of course, with asset monetisation in railways not picking up as much pace as the government would like. However, the private sector has shown enthusiasm for the NMP and it can be expected that the pace of asset monetization will pick up from the current year onwards.