Government must no longer drag its feet on public sector disinvestment

It is time for the Government of India to act boldly and ensure that it moves out of the business of doing business

The glacially slow pace of public sector disinvestment seems to have picked up pace with latest reports that several expressions of interest have been received for the sale of equity in the IDBI Bank.

The sale of majority stake in the bank will make the government a minority shareholder with less than 40 percent stake in the bank. Currently, the government and the Life Insurance Corporation of India (LIC) hold 94.72 percent equity in the bank.

With this process moving forward, it seems divesting equity in banks is becoming a reality. It had appeared last year that the government was having second thoughts after the Reserve Bank of India (RBI) published a research paper suggesting that bank privatisation should not be done in a hurry. The paper suggested that a gradual approach to privatisation rather than a big bang strategy could ensure that a void was not created in fulfilling the social objective of financial inclusion and monetary transmission. Though the central bank distanced itself from the report, it prompted speculation that the government may slow down on the privatisation process.

Finance Minister Nirmala Sitharaman made it a point to clarify the issue by declaring that there was a commitment to banking reforms as well as the disinvestment process. Even so, there has been little movement on this front in the current fiscal. With the latest news on IDBI Bank, it is evident the government is trying to raise more funds through the disinvestment process as set out in the last budget.

The fact is, however, there have been few major developments since the big bang sale of Air India in 2021. It had then been expected that the next big strategic sale would be that of Bharat Petroleum Corporation Limited (BPCL). On the contrary, geopolitical developments, including the Ukraine war, have meant that international oil markets have been volatile throughout the past year, making investors rethink funding plans in the risky oil business.

The Department of Investment and Public Asset Management (DIPAM) may also have been hesitant to undertake equity sales in 2022-23 in the light of global headwinds affecting stock markets. But it is clear the volatility is likely to continue given the fact that the Ukraine war does not look likely to end anytime soon. As of now, therefore, the budgetary target of Rs 65,000 crore from disinvestment seems a distant dream.

Some progress has been made in selling equity stakes in a few companies, but finalisation of the process is likely to take time. For instance, expressions of interest for strategic sale have been invited for Rashtriya Ispat Nigam Limited (RINL) or what is generally known as Vizag Steel. The steel firm reportedly has several interested buyers including Tata Steel, the Adani group, and JSW Steel.

Other public enterprises in the pipeline include the Container Corporation of India and Shipping Corporation of India. But these may only be finalised in the next fiscal. It is possible, however, that receipts from divesting the entire government equity share in Hindustan Zinc Limited (HZL) may come in during the current year. This could potentially boost the divestment kitty by about Rs 38,000 crore.

In this backdrop, it is time for the government to review the rationale yet again for its public sector disinvestment policy. It had earlier been spelt out that the aim was to move government out of doing business and focus on basic needs of the ordinary citizen. Even recently Prime Minister Narendra Modi said in an interview that the government has no business to do business. He stressed that government should have other priorities such as food, potable drinking water, toilets, housing, and healthcare facilities.

If this is the aim, then the process of disinvestment should be moving much more rapidly than it is right now. A long list of public sector companies may have been identified for disinvestment, but little has been done in this direction over the past year. The sale of Air India had given rise to hopes that the government was going to carry out major public sector reforms. It was a landmark decision carried out in the face of stiff opposition to sale of the national carrier.

A similar resolve now seems to be lacking to deal with the disinvestment process for other companies in the pipeline. The news that there will be no more strategic sales in fiscal 2024 is evidence that this is a reform now being kept on the backburner.

There are clearly fears of irregularities in carrying out transactions as some deficiencies were found recently in the plans relating to Central Electronics Limited. But this should be seen as only a minor setback. There is considerable expertise with government agencies now after having carried out several strategic sales over the years. Thus, there is no reason that speed and efficiency cannot go hand-in-hand while tackling these transactions. Public sector disinvestment is a major long-term reform. It is time to move ahead boldly on this front,
and ensure that ultimately the government moves completely out of the business of doing business.

(Sushma Ramachandran is a senior journalist.)

Disclaimer: The views expressed are the author's own. They do not necessarily reflect the views of DH.