Ever since a disinvestment policy was proposed and framed in 1991 under Prime Minister Chandra Sekhar to reduce the government’s stake in public sector companies, the government had believed that it did not want its finger in every pie. Now, the Narendra Modi administration seems all set to make a windfall selling stake in 20 PSUs. However, despite its eagerness to monetise the family silver, the government does not wish to lose its control over these companies. “Why should the government privatise it when a PSU is competing with private players without taking subsidy and it is able to stay profitable?” asked Arvind Panagariya, vice chairman of NITI Aayog.
The NITI Aayog is advising the government on its disinvestment policy and guiding the Department of Investment and Public Asset Management (DIPAM) to undertake disinvestment and strategic sale. It expects the selling of minority stakes in seven bluechip companies—NTPC, SAIL, Indian Oil, PFC, NHPC and Neyveli Lignite—to garner about Rs 34,000 crore. “Nothing will be done in a hurry. We are sending a detailed report with each and every proposal to the respective ministry,” said Panagariya.
In the Union budget, the government had announced plans to sell stakes in 20 companies to raise Rs 72,500 crore in 2017-18. In the last fiscal, the government’s disinvestment stood at an all-time high of Rs 46,246 crore, but it did not meet the target of Rs 56,000 crore.
Among the highly anticipated stake sales are that of Hindustan Zinc, a Vedanta subsidiary since 2003, in which the government holds 29 per cent. The parties could not reach an agreement over the valuation because the large cash reserves and land assets of the company were not included in it. In January 2016, however, the Supreme Court advised the government against the stake sale without the consent of Parliament, as Hindustan Zinc was formed out of a special act of Parliament—Metal Corporations Nationalisation and Miscellaneous Provisions Act, 1976. “As most PSUs are formed under a parliamentary act, their disinvestment could also be put into question after the Supreme Court order, unless the decisions are ratified by Parliament,” said Lok Sabha member Bhartruhari Mahtab, who is also a member of the parliamentary standing committee on finance. “We had suggested that legal advice be taken before proceeding with any disinvestment decisions.”
Apart from the bluechip stocks, the government plans to list 16 state-owned companies. “The process has started for appointing legal advisers and merchant bankers for some of these companies and we are receiving feedback from merchant bankers on their queries,” said Neeraj Gupta, secretary, DIPAM.
The finance ministry said it was planning to step up disinvestment as it had to spend more on infrastructure and social schemes and cut the fiscal deficit to 3.2 per cent of the GDP in 2017-18 from 3.5 per cent a year ago. While this seems tough, Gupta is confident. In fact, he has had a stellar year. His last three calls on sale of government stakes—Nalco offer for sale and buyback (01,193 crore), HCL offer for sale for employees (Rs 5.65 crore) and public offering of HUDCO (Rs 1,224 crore)—were oversubscribed more than twice. “I am happy that retail investors had responded heavily and they are having more investments than institutional investors. This is what we wanted. To decentralise the ownership of PSUs from the government to the people,” said Gupta.
Rail Vikas Nigam Ltd, IRCON International Ltd, Indian Railway Finance Corporation Ltd, Indian Railway Catering and Tourism Corporation Ltd, RITES Ltd, Bharat Dynamics Ltd, Garden Reach Shipbuilders & Engineers Ltd, Mazagon Dock Shipbuilders Ltd (MDSL), North Eastern Electric Power Corp, MSTC Ltd and Mishra Dhatu Nigam Ltd have so far been shortlisted for listing by the department.
The government also has plans to list five state-owned insurance companies—New India Assurance Company Ltd, United India Insurance Company Ltd, Oriental Insurance Company Ltd, National Insurance Company Ltd and General Insurance Corporation of India—but the employees are opposing it. Last year, employees had resisted the government’s decision to privatise these profit-making companies. Four public sector insurance companies recorded a 24.48 per cent growth rate and earned a premium income of Rs 59,357 crore in the last fiscal. “Members of the Joint Forum of Unions and Associations of Officers and Employees of Public Sector General Insurance Companies will go on nationwide strike if the Central government does not drop proposals for disinvestment in the public sector general insurance companies,” said J.P. Sharma, general secretary, General Insurance Employees Union. The Bharatiya Mazdoor Sangh has also opposed the government’s decision to list general insurance companies.
Some big PSUs are plagued by a different kind of problem. Coal India Ltd, for instance, has faced roadblocks from investment bankers and foreign institutional investors in its efforts to sell stake. They have raised concerns over CIL’s environment policy, death of some workers in mines and allegations of child labour. The government owns 78.86 per cent stake in CIL.
Similarly, a global pension fund from Norway and some merchant bankers have raised concerns over poor environmental practice and work safety practices by NTPC and NHPC. “We are aware of these issues and nothing will be pushed under the carpet. We have nothing to hide and we are providing regular clarifications to every investor queries,” said a joint secretary at DIPAM.
DIPAM is also keen on selling small stakes in private companies owned by the government and held under Specified Undertaking of Unit Trust of India. SUUTI holds stocks of Rs 60,000 crore in listed bluechip companies. This year, sale proceeds from SUUTI stocks have touched Rs 10,000 crore. “Some of the SUUTI holdings will be offered through the new CPSE-ETF (exchange traded fund) that we are creating. This would be more robust and include not just energy companies but also banks and others,” said a DIPAM official.
Economists say the government is progressing on the right path. “It is better that sick PSUs get a fresh life with a new ownership,” said Pinaki Chakraborty, professor, National Institute of Public Finance and Policy. A paper submitted by NIPFP to the government had provided a roadmap and the economic rationale behind going in for strategic sale of ownership in PSUs.
“This year the government is playing the markets smartly,” said Abheek Barua, chief economist and senior vice president, HDFC Bank. “It is a good thing because even after these disinvestments and small stake sale, the government is still likely to retain corporate control over most of these companies that are ought to be listed. It is a perfect case of delinking from assets without losing control over them.”
* The government has stakes in 289 central PSUs, of which 235 are functional
* It also plans to list five state-owned general insurance companies and is keen on selling small stakes in private companies that is held under Specified Undertaking of Unit Trust of India
* It expects the selling of minority stakes in seven bluechip companies—NTPC, SAIL, Indian Oil, PFC, NHPC and Neyveli Lignite—to garner about Rs 34,000 crore
* Apart from the bluechip stocks, the government has plans for listing 16 state-owned companies
