As per the current policy, the government retains 51% of the equity and management control in all cases of disinvestment.
Privatisation of state-run firms may be back on the policy radar after a decade. Finance minister Arun Jaitley on Wednesday said the government will consider in “due course” capital infusion to the extent of ownership change in central public sector enterprises (CPSEs) that are on the verge of closure. This marks a significant policy shift as privatisation of state-owned companies has remained an anathema since the previous NDA government sold off majority stakes in Hindustan Zinc and Balco to the Vedanta Group between 2001 and 2003 and looked doomed with Narendra Modi vouching for strong PSUs.
As per the current policy, the government retains 51% of the equity and management control in all cases of disinvestment. Although it is stated that a strategic sale of a company can be considered in cases where turnaround attempts fail, this was not attempted by the two UPA governments. Practically, CPSEs that need to meet the compulsory minimum 10% public listing requirement, profitable unlisted companies that need to raise capital and listed firms needing more capital have been chosen for divestment.
“That (present) policy will continue for now. However, going forward, I will be open to look at companies which are on the verge of closure and will do much better in private hands,” Jaitley said, at the World Economic Forum summit here.
The scope of such a policy change is big given that as many as 79 CPSEs including Air India, BSNL and MTNL reported losses in FY13. Of these, 48 have been recommended for revival and others for closure by the Board for Reconstruction of Public Sector Enterprises. Hindustan Photo Films, Hindustan Cables, Fertiliser Corporation of India and Hindustan Fertiliser were also among the top ten major loss-making CPSEs that accounted for 92% of total CPSE losses of R28,260 crore in FY13.
Rationalising subsidies, eliminating official-level discretion in allocation of natural resources and easing certain aspects of the land acquisition law keeping investors’ interests in mind are also among the priorities of the government, Jaitley said. The minister said he had no problem with the increase in compensation proposed in the land acquisition law, but indicated that the consent and social impact assessment provisions, which the industry called cumbersome, could be tweaked. Jaitley felt that the provision that disallows private schools, hospitals and hotels on land acquired by the government could hamper the creation of smart cities, a pet project of the government.
He added that some defence projects were facing some hurdles related to land acquisition.
Separately, he told a foreign TV channel that India needs to ensure stability of policy including in taxation and keep the door “wide open” so that global investors can come in.
The minister said at the WEF that private ownership of sick PSUs may be a better option than such companies facing closure, leading to job losses. There are a large number of companies that are substantially on government support and this is not a sustainable proposition, the minister said adding that taxpayers cannot endlessly finance loss making enterprises. For the current fiscal, the finance ministry has set a target of Rs 43,425 crore from CPSE disinvestment and another Rs 15,000 crore from sale of stake in non-government companies. Disinvestment proceeds added only Rs 16,027 crore to the exchequer last fiscal. ONGC, Coal India, SAIL and NHPC are the companies to hit the market this fiscal while the government’s residual stakes in Hindustan Zinc and Balco could also be sold in the year.
Jaitley indicated that the policy of reducing the element of discretion in decision making will be implemented in all natural resources the same way the Modi government recently provided for e-auction of coal blocks to end users through an ordinance after the Supreme Court cancelled 204 captive coal blocks allocated arbitrarily between 1993 and 2011.Calling reforms an art of the possible, he said that a lot more measures to revive the economy would be taken within the present political and governance framework rather than going in for one or two big-bang announcements that are too difficult to execute. He expressed the hope that the long-pending Insurance Amendment Bill, which seeks to raise foreign direct investment in the sector from existing 26% to 49% will get Parliament’s approval in the upcoming winter session.
On FDI in railway infrastructure, he said the success or otherwise of the current policy of allowing 100% in select areas would determine whether more areas would be opened up in this sector.