Disinvestment in India

[op-ed snap] How to set the sell-off ball rolling once again

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.

 


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Disinvestment Policy in India.

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