Note4Students
From UPSC perspective, the following things are important :
Prelims level : Disinvestment - various types
Mains level : Disinvestment challenges and Way ahead
Context
The government is drawing up plans to sell its stake in several state-run companies as part of its disinvestment programme for this financial year.
Disinvestment
- Several companies have been identified for the sale of minority stakes.
- Some companies for strategic disinvestment—where the government reduces its ownership to a minority holding.
Need for disinvestment
- Half of this financial year is almost over. Of the ₹1.05 trillion disinvestment target set for 2019-20, only ₹12,357 crores, or 12%, has been raised so far.
- The government could anyways engineer one state-run company to buy the stake of another—like the ONGC-HPCL deal last year—or by having Life Insurance Corporation subscribe to share offerings.
- Buch a strategy could erode the agenda’s credibility.
- It’s best if disinvestment is done to achieve efficiency aims.
- Firms that would perform better in private hands than the public should be allowed to change owners.
Making Disinvestments work
- For better price realizations on shares, the government may be tempted to wait for market conditions to improve.
- But markets are subject to various vagaries, and there is no appropriate time for disinvestment.
- If a more efficient economy is the objective, then government equity should be offloaded regardless of market index levels.
- The government should resist imposing conditions that make stake sales unattractive. A strategic buyer of a firm would need a free hand to reorganize operations as it deems fit.
- In the case of Air India, the Centre had stiff riders on matters such as the retention of employees, mergers of ancillary businesses, and so on; it also insisted on retaining a 24% stake in the airline.
- With a heavy debt burden, Air India failed to attract even a single bid despite two attempts.
- Disinvestment process demands clarity on its main goal.
- It needs to be made investor-friendly.
- Some state-owned companies need to be privatized outright, with no strings attached.
- The assurance that the government would cease to exert control may be necessary for prospective buyers to see value in taking over.
- Private turnaround plans often include staff downsizing; this should not pose a political problem.
- Profitable public sector units
- sell-offs tend to meet even more resistance, mostly from employees who fear for their jobs
- Many of these are likely to do better under private management.
- Investor appetite for such companies is likely to be higher.
- The successful sale of a high-profile profit maker could even generate enthusiasm for the entire programme.
Way ahead
- “The government has no business being in business”. Along with this, the state should focus on governance and not on activities that private parties are better equipped to handle.
- Companies that are vital to the state’s strategic interests cannot be sold off. But most businesses owned by the government surely can.