Price we pay for privatisation delays”

News 

Government has been missing its disinvestment targets by huge margin and this delay has been hurting its revenues and PSUs both. 

What has been government’s progress on its disinvestment target? 

For 2021-22, the Centre set a disinvestment target of ₹1.75 trillion however so far it has collected just ₹9,329 crore. 

Although the finance minister’s budget speech in February 2021 listed BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, etc for disinvestment. The only transaction that has materialized is Air India going to the Tata Group. 

How is the delay in disinvestment hurting the PSU sector? 

This index has risen only 16% while the Sensex has nearly doubled since. 

Note- Bombay Stock Exchange’s S&P BSE Bharat 22 Index measures the stock performance of 22 companies that had seen different degrees of disinvestment by the Centre.  

The sale of BPCL, for instance, was approved by the Centre on 21 November 2019. In the three-month period prior to that announcement, the BPCL stock surged 60%. However, the sale process did not received the appropriate response , with global majors staying away. And the stock has dropped 10%.  

A company can either retain its surplus (for expansion or improvement in operations, or for tighter days) or distribute it to shareholders as dividends. Government to enhance its revenues is seeking huge dividends from PSUs leaving less with them for expansion.  

At the same time, the market value of PSUs(Which is a marker of how investors see them) has stagnated. 

In recent times, most disinvestment has involved giving away small stakes in the stock market or merging two PSUs. Both these ways are not profitable for PSUs and also lower the revenue potential for the Centre. 

What is the way forward? 

While on one hand Centre is presenting the view that its disinvestment policy is “being guided by the basic economic principle that government should discontinue in sectors where competitive markets can utilize the economic potential of such entities through strategic investors”.  

While at the same time, it is also forming new ventures. According to the Department of Public Enterprises, Government has a plan to bring 96 new PSUs. Government should try to sort out these dichotomies and should start execution of its other disinvestment Plans. 

Source– This post is based on the article “Price we pay for privatisation delays” published in Live Mint on 25th Jan 2022.