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Ending the Struggle to Freedom

12 Oct 2021

While GoI had been implementing many measures announced in its annual budgets, disinvestment and privatisation of public sector undertakings (PSUs) had been lagging. Against a target of raising ₹1.75 lakh crore, till August 2021, the amount raised had been only ₹8,371 crore. With the Air India sale to the Tata Group last week, this state of limbo seems to be changing. Taxpayers have been contributing over ₹1.1 lakh crore to support the loss-making airline since 2009-10. It must be a major relief to GoI to have finally closed this deal.

The Air India sale will bring confidence to industry that GoI is able to walk its talk about reforms and raise resources through non-tax measures. Also heartening is the government’s decision to entirely exit the company. This has generated greater interest among private players. The recent announcement on asset monetization will further bolster GoI’s resource-raising ability.

Other PSUs lined up for strategic sale include Bharat Petroleum Corporation limited (BPCL), Container Corporation of India (Concor) and Shipping Corporation of India (SCI). Two public sector banks are also expected to be privatised, while Life Insurance Corporation (LIC) is expected to come up with its initial public offering (IPO) in the fourth quarter of the year.

Once the ball is set rolling, it is likely that significant resources will be raised through disinvestment, privatisation and asset sales over the next few years. This will ameliorate the pressure on government finances and interest rates. Better use can be made of government resources than keeping afloat loss-making enterprises.

For the private sector, this would open opportunities to enter new sectors or increase their market share in sectors where they have so far been smaller players. Indeed, the airline sector is a case in point where greater private sector activity can lend dynamism. 

In 2019, the Confederation of Indian Industry (CII) recommended that there should be clarity in the road map for PSUs, and that this can be achieved by first classifying them into core and non-core within a transparent framework. This is what was done by delineating PSUs into strategic and non-strategic sectors in the 2021-22 Union Budget. Further, it was stated that while a minimum presence of PSUs will be retained in strategic sectors, PSUs in non-strategic sectors will be privatised or closed. This is indeed, being acted upon. 

GoI has specified individual enterprises to be taken up for a strategic disinvestment. Admittedly, the COVID-19 pandemic has pushed back the implementation of these, so that some slippages is into the next financial year can be understood. In terms of priority, GoI could now look at some movement in the banking space, which would set the direction in an area where reforms have been long overdue. There is much need for greater efficiency and scale in banking, and the time is right for moving ahead with identifying the two public sector banks (PSBs).

Other important aspects of GoI’s disinvestment policy include setting up a special purpose vehicle (SPV) for monetising land and providing incentives to states for carrying out similar disinvestment of state PSUs. It may be useful for the government to monitor and publish the sales that are taking place in these two areas. Indeed, it is clear from Air India’s sale that the land and real estate assets are not being sold along with the company. These will be sold separately through the SPV. Such a policy would extract more value from the assets. Criticism on the lack of progress on the disinvestment front can be suitably rebuffed after this year’s budget has laid out a clear way forward. The sale of Air India is clearly a turning point for the implementation of reforms in India.

The article first appeared in The Economic Times on 12 October 2021.