It is not clear when the government will finally clear the policy on strategic sectors for PSUs—in each such sector there will be a maximum of four PSUs—that finance minister Nirmala Sitharaman had spoken of in May, but to quote what she said on Monday, this policy would bring about a directional shift “away from the socialist baggages that we have been carrying all the while … some of which are becoming more and more of a burden”. The FM didn’t mention any names but, for instance, Air India ran up losses of Rs 27,255 crore in FY16-20 and BSNL/MTNL lost Rs 62,725 crore in the same period; since it is unlikely consumers will suffer much if the two are shut or privatised, it is possible these are the kind of instances the FM is alluding to, losses that are becoming more of a burden with each passing day. Under the new policy, then, it is possible that aviation will be considered non-strategic; in which case, Air India can be sold. If telecom is considered strategic, retaining BSNL/MTNL will be a certainty; that’s why a bailout package was given to it earlier.
What really matters, though, is whether the policy will actually be implemented; and if it is, what form this takes. Air India was to be divested, for instance, long before the strategic-sector policy was even thought of; in which case, the policy is not going to result in some path-breaking privatisation recommendations. In the case of banks, does the new policy mean all but four PSU banks will be privatised—the government couldn’t even sell IDBI Bank that was the only one that didn’t require Parliament’s nod—or will the government get around this by merging all PSU banks into these four? The government has 13 energy companies, so since the sector is likely to be considered strategic, does this mean nine PSUs—like BPCL—will be sold off, or will they be merged or amalgamated with existing ones; the farce of ONGC buying HPCL for Rs 37,000 crore comes to mind immediately.
Indeed, what matters is how quickly the government takes decisions. Having to sell IDBI Bank to LIC instead of to a private buyer is definitely a negative, and the government lost a golden opportunity to sell Air India two years ago when it refused to take on all the airline’s accumulated debt. Equally important, given the rapid decline in the market value of PSUs, speed is of the essence in divesting shares in PSUs or even selling them off. When PM Modi first came to power, the market capitalisation of all PSUs was Rs 19.4 lakh crore, and that equalled 22.5% of the value of all firms on the BSE. Today, while the value of all shares on the BSE has risen to Rs 159.4 lakh crore, the PSU value has fallen to Rs 14.7 lakh crore, which is a mere 9.2% share. Had PSUs been able to grow as fast as the rest of the BSE, their market value would have been Rs 21.1 lakh crore more than it is today! So, even if the government doesn’t plan to privatise a PSU, even selling their shares in the market would fetch a higher price if it is done quickly. SBI, for instance, was valued at Rs 2.06 lakh crore when Modi came to power, but is worth just Rs 1.82 lakh crore today. Of course, values fluctuate—SBI’s value rose to Rs 3.05 lakh crore on May 23, 2019—but, as a general rule, PSU values keep falling over time; ONGC has seen a steady fall from Rs 3.49 lakh crore on May 23, 2014 to Rs 87,118 crore on October 19, 2020. So while it is true that the Covid pandemic has delayed the privatisation of BPCL and the listing of LIC, the only policy the government really needs is one that ensures PSUs are divested/privatised at the earliest.