Ahead of Budget 2025, there are indications of a policy rethink regarding strategic disinvestments or privatisation of public sector undertakings (PSUs), announced with much fanfare in Budget 2022. In the spirit of the government having no business to be in business, it announced that Air India, Neelachal Ispat Nigam Ltd, BPCL, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, besides two public sector banks and a general insurance company, would be privatised. However, progress has been somewhat underwhelming, with only Air India and Neelachal Ispat Nigam Ltd going to the Tata Group. Post-elections, the government’s reduced majority in Parliament may have also dictated a degree of caution regarding the P-word, which is politically fraught due to the popular perception that it entails selling the family silver to pay the butler.
But a more important reason appears to be the robust performance of PSUs that have outshone their private sector peers in the last five years due to their efficient capital management. It has rewarded the government (and minority stakeholders) with much higher revenues and dividends. This uptick in PSU performance has no doubt provided “strategic space” to the ruling dispensation to recalibrate its sweeping agenda for privatisation, which entailed retaining a minimum presence in four strategic sectors while strategically disinvesting the rest. Exemplifying the new mood on the policy front is the fate of the state-owned fuel-cum-refining giant, BPCL. The Union minister of petroleum and natural gas, Hardeep Puri, has clearly stated that plans to sell it were off the table as BPCL was making almost as much profit in a year as the price it was to be sold for.
In 2022, the government called off the sale process as the shortlisted bidders did not put in financial bids amidst concerns of the lack of pricing power of state-owned fuel retailer-cum-refining companies. The government would henceforth pursue privatisation keeping various factors in mind, including the far-from conducive prevailing political atmosphere. For such reasons, the government might pursue the existing pipeline of IDBI Bank and SCI, but is unlikely to soon take up any big-ticket strategic disinvestments. Unlike strategic disinvestments—which are complicated exercises and politically contentious—plain vanilla stake sales or disinvestments are not so controversial. The P-word entails a shift of management control to the acquiring party in contrast to disinvestments or incremental scrip sales of listed state-owned entities while the government retains majority control. Given the booming valuation of PSU stocks, this might indeed be the best time to partially offload stakes.
As the market capitalisation of 80-listed PSUs has increased 2.56 times to Rs 59.5 trillion as of July 12, the government can easily raise substantial revenues by selling minority stakes. For such reasons, the disinvestment targets in the forthcoming Budget 2025 can be more ambitious to fetch the government sizeable “miscellaneous capital receipts” to fund the government’s capex plans to boost overall economic growth. Indications are that the government will also raise considerable resources through asset monetisation, including selling parcels of underutilised land of state-owned entities. Relying on market borrowings to finance a public capex push is not desirable from a fiscal consolidation standpoint. While at some point the private sector must do the heavy lifting in terms of investments, the government must garner resources from disinvestments to complement that effort.