The Government has been following the policy of disinvestment in non-financial public sector undertakings maintaining the Government stake not to go below 51 per cent. But there is going to be a marked change in the approach. The government is now considering to go below 51 percent to ‘an appropriate level’ in cases where the undertaking is still to be retained in government control.
FINANCE Minister Nirmala Sitharaman’s maiden Budget carries forward the Modi Government’s stated position that the Government has no business to be in business. So, it is natural that the Finance Minister has proposed new measures to dilute the importance of public sector. Sitharaman, in fact, introduces her task in the Budget speech with an apology for the private sector. “We do not look down upon legitimate profit-earning. Gone are the days of policy paralysis and license-quota-control regimes. India Inc. are India’s job-creators.
They are the nation’s wealth-creators. Together, with mutual trust, we can gain, catalyse fast and attain sustained national growth,” she said while emphasising the importance of India’s private sector industries and their substantial role in growing the economy. While the sale of public sector enterprises has so far been considered as a tool for nursing back sick units, the Government now wants to sell profit-making enterprises. This is a major shift in the approach. The change is obviously due to the disappointing record of divestment in loss-making enterprises. Strategic sale of loss-making public companies was supposed to help in infusion of funds, thus reducing the burden on Government finances. But the Government has achieved little success in selling these units.
As many as 24 such enterprises have been approved for sale in the 2018-19 financial year, but none of these has yet been sold. And these include the high-profile Air India, which is expected to anchor the disinvestment programme under the new Budget. In fact, the process for the sale of Air India continues to be a white elephant, just like the State-owned airline has been. The other enterprises identified for sale include Scooters India, Bharat Pumps, Project & Development India, Hindustan Prefab, Hindustan Newsprint, Bridge and Roof Co and Hindustan Fluorocarbons.
According to published reports, 71 out of 257 operational CPSEs were in the red in 2018-19 with a combined loss of Rs. 31,260 crore. Of this, BSNL and MTNL accounted for about Rs. 11,000 crore, and Air India Rs. 5,338 crore. Rather than projecting it as outright sale, the Government prefers to call it strategic disinvestment.
The Budget announces that the strategic disinvestment of select CPSEs would continue to remain a priority of the Government. “In view of current macro-economic parameters, Government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more CPSEs for strategic participation by the private sector,” the Finance Minister announced. The Government has set an enhanced target of Rs. 1,05,000 crore of disinvestment receipts for the financial year 2019-20. The target is to be achieved through ‘strategic sale’ of the PSUs. At the same time, the Budget promises to continue the Government efforts at consolidation of PSUs in the non-financial space. Last year, the Government raised Rs. 85,000 crore from selling assets such as Coal India Ltd. and Bharat Heavy Electricals Ltd. It had been announced that the target for the year has been exceeded by Rs. 5,000 crore. So, the new target of Rs. 1.05 lakh crore looks reasonable.
The Government has been following the policy of disinvestment in non-financial public sector undertakings maintaining the Government stake not to go below 51 per cent. But there is going to be a marked change in the approach. The Government is now considering to go below 51 per cent to ‘an appropriate level’ in cases where the undertaking is still to be retained in Government control. This will be done on a case to case basis. The Government has also decided to modify the present policy of retaining 51 per cent Government stake inclusive of the stake of Government controlled institutions. This is expected to further dilute direct Government ownership. For bringing better public ownership of the PSUs and also to bring greater commercial and market orientation of the listed PSUs, the Government will further take necessary steps to meet public shareholding norms of 25 per cent for all listed PSUs and raise the foreign shareholding limits to maximum permissible sector limits for all PSU companies which are part of Emerging Market Index.
The disinvestment programme is proposed to be expanded with the inclusion of exchange traded funds (ETFs) on the lines of equity-linked saving schemes to rope in retail investors. ETFs have proved to be an important investment opportunity for retail investors and a good instrument for divestment programme. The addition of ETFs is expected to encourage long term investment in CPSEs. This is part of the Government’s effort to align domestic corporate systems and practices with global standards. The Government hopes that this would help improve the capital flows into the Indian economy. The global finance movement in equity uses certain parameters to evaluate the stocks in which they choose to invest. This is the idea behind encouraging retail participation in CPSEs which, of late, has shown very encouraging upward trend.
The Government justifies the move to realign its holdings in CPSEs, including banks, to permit greater availability of its shares and to improve depth of its market so as to provide additional investment space. A most salient feature of the Finance Minister’s Budget proposals is the allocation of Rs. 70,000 crore additional capital to the public sector banks. This is even more than the expectations of the market, which had pegged the figure at around Rs. 50,000 crore. About half of the allocation would be used to meet regulatory requirements, while the remaining could come handy as growth capital. The Government believes that the worst may be behind for the banking sector.
The Finance Minister announced in her speech that the bad loans of the commercial banks had come down by over Rs. 1 lakh crore over the last year, and there was a record recovery of over Rs. 4 lakh crore, thanks to the Insolvency and Bankruptcy Code. Six public sector banks are already out of the Prompt Corrective Action (PCA) framework of the RBI. The provision coverage ratio is now at its highest in seven years, and domestic credit growth has risen to 13.8 per cent, Sitharaman said. The privatisation programme for the Railways is expected to be pursued with increased vigour. The Finance Minister has proposed public-private partnerships to build more tracks and increase connectivity across the country. Over the last years, the Government had initiated several efforts in this direction as the passenger subsidy was seen eating into Railway’s profitability.
The Government’s strategy for the Railways has been to increase capacity through enhanced signalling and adding more lines, along with cost-cutting in the loss-making passenger sector. The Railways’ revenue comes from the freight section, but much of it is lost in subsidies in the passenger sector. The Government hopes that the problem can be addressed through the PPP route, which could bring in greater commercialisation of the operations.