The Centre has explicitly barred the central public sector enterprises (CPSEs) as well as state governments and companies/co-operatives owned by them from bidding for CPSEs being put on the block. The move is intended to ensure that the government’s policy to privatise most CPSEs while keeping only a few under its ownership in strategic sectors is not thwarted by CPSEs buying one another.
The department of investment and public asset management (Dipam) said in an office memorandum issued to CPSEs and other government departments: “In general, PSEs suffer from the constraints of fresh capital infusion, as well as lack of innovation, modern technology and the ability to diversify services and production. Due to multiple systems for accountability, these enterprises are commercially risk-averse and lack adaptability in a dynamic business environment. As a result, useful productive assets remain locked in such PSEs resulting in sub-optimal realisation of valuable economic opportunities.”
Exemption from the rule, however, would be made “if specifically approved by the central government in public interest”, the Dipam added.
In the past, the Centre has sold its majority stakes in certain CPSEs to other CPSEs. While these transactions helped it boost annual disinvestment receipts, they came under criticism, for being at odds with the stated intent of the disinvestment policy.
The Centre’s clarity on the issue is important as hundreds of CPSEs will be privatised in the coming years both from strategic sectors and non-strategic sectors. According the PSE policy, the Centre will retain minimum presence in atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services. While it will exit the non-strategic sectors such as textiles, pharma, metals, among others.
The Centre mobilised a record Rs 1 trillion in FY18 and `85,000 crore in FY19 from disinvestment of its stake in various companies, but some of its sheen was taken away by the fact that CPSE-CPSE deals (ONGC-HPCL in FY18 and PFC-REC in FY19) and stake purchases by LIC played a major role in boosting the receipts.
LIC, which has played the White Knight for the government’s disinvestment programme in the past, invested over Rs 21,000 crore to acquire majority stake in the ailing IDBI Bank in FY19. LIC also bailed out many minority stake sales by the government by investing heavily in offer for sales and IPOs such as that of New India Assurance and General Insurance Corporation.
PSEs controlled by the government include those where 51% or more ownership is with the Centre/state governments or jointly with central and/or state governments.
The PSE policy announced in February 2021 outlined four strategic sectors in which “bare minimum” number of CPSEs will be retained while the rest would be privatised or merged or made subsidiary of another CPSE or closed down.
The four sectors are – atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services. PSEs in non-strategic sectors will be considered for privatisation or closure.
“In order to realise the mission of new, self-reliant India, the PSE policy intends to minimise the presence of Government in the PSEs across all sectors of economy and to make available newer investment opportunities for private sector, so as to allow infusion of private capital technology, innovation and best management practices so that post-privatisation growth of PSEs may generate higher economic activities resulting in new job opportunities and growth of the ancillary industries,” it said.
The Dipam has said: “As a general policy, public sector enterprises (PSEs)[central/state/joint]/state governments/Cooperative Societies controlled by the Governments (i.e. where 51% or more ownership is by the Central Government/ State Governments/Jointly by Central and/ or State Governments) are not permitted to participate in the strategic disinvestment/ privatisation of other PSUs as bidders unless otherwise specifically approved by the Central Government in public interest.”