Disinvestment in India

Disinvestment in India

[op-ed of the day] Strategic disinvestment does not deserve the criticism it getsop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3- Pros and cons of strategic disinvestment.


Context

Air India is on the block.

Why disinvestment is not such a bad idea?

  • Wisdom lies in the use of resources to meet the emergent needs: True wisdom lies in the use of resources, including the so-called “family silver”.
    • To meet emergent needs.
    • As also for better returns.
    • Even individuals and private sector organizations committed to meeting their obligations or optimizing wealth creation take such initiatives routinely.
  • The weakening of Indian economy
    • This fiscal year’s second quarter growth in the gross domestic product (GDP) slipped to 4.5% and the portents of a slowdown have been quite apparent.
    • Private sector investment is sagging. Gross capital formation has dipped.
    • Aggregate demand has contracted.
    • Public sector expenditure is the single engine that’s driving economic growth.
  • Clamour for the government to open its purse and limited fiscal room.
    • Shrunk revenue growth: There is a clamour for the government to open its purse and help out. However, its revenue growth has shrunk.
    • Low direct tax collection: Direct tax collections registered a growth of only a little more than 6%.
    • The cautious approach by the RBI: The Reserve Bank of India has taken a rate cut pause, inter alia, to watch the government’s approach to the fisc.
    • Commitment to low inflation: The political executive seems determined to honour its commitment to low inflation and macroeconomic stability.
    • India facing Hobson’s Choice: India is thus faced with a Hobson’s choice—either to significantly revise its fiscal deficit target or monetize state assets.
  • The liberalized markets and optimizing wealth.
    • Perception in the capital market: Capital markets operate on perceptions. Valuations of public sector enterprises tend to be much lower than those of private sector companies even if their profit numbers are the same.
    • Why should India suffer suboptimal wealth creation?: The liberalized market philosophy that the country has pursued aims at optimizing wealth creation. In case a change in ownership structure can deliver higher wealth, why should Indian society retain the current ownership frame and suffer suboptimal wealth creation?
    • Need to make policies aimed at value creation: Given the limits on India’s resources, it is all the more important to see that policies are geared to ensure that value is created.
    • Stake sales can achieve value creation: For validation of this surmise, look at the rapid rise in the enterprise value of Bharat Petroleum, as indicated by its share price, since the announcement of its strategic disinvestment.
  • Not all private sector companies perform well: In those cases, the losses are not funded by innocent taxpayers.

Twin angles to welcome strategic disinvestment

  • One: The need for India to invest in fresh asset creation.
  • The fresh asset can be created by way of roads, ports and airports that would result in a cascade effect for the economy’s growth.
  • Two: The optimization of wealth generation from the country’s assets.
    • This, incidentally, will benefit individual shareholders, including employees with shares, who have invested in the equity of listed public-sector companies such as Bharat Petroleum.
    • Energy security of the country not harmed: As there are other state-owned petroleum companies undertaking exactly the same activities, such as refining and marketing crude oil, the sale of one company does not tamper with the energy security of the country.

Way forward

  • Caution against undervaluation: The government, however, must ensure that it is not taken for a ride. It must make a good judgment of the value of the company it decides to disinvest from and if the market conditions are not favourable for the move it must wait for the opportune moment.
  • Asset creation from the proceeds: Instead of using the proceeds from the disinvestment to fund revenue deficit the proceeds must be utilized strictly for new asset creation.

 

 

Disinvestment in India

[oped of the day] The not-so bright idea of selling the family silverop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Costs and Benefits of Disinvestment


Context

The proposed stake sale of profit-making public sector undertakings (PSUs) raises a few strategic issues of national importance.

Issues 

    • Ideological – that the Government must get out of business. 
    • Economic – to bring the fiscal deficit down. 
    • Long-term financial one – which option, public- or privately-owned, is better for the Government treasury.
    • National security and self-reliance – can India be under pressure if we do not have full control over petroleum? The United States, China, and other superpowers have control over their petroleum reserves.

Long-term financial issue

    • The Burmah Shell (Acquisition of Undertakings in India) Act 1976 enabled the Government of India to take ownership by paying ₹27.75 crores. 
    • One estimate of that amount in today’s terms is to use the inflation factor, which is about 22.42. This means that the Government would have paid ₹622.06 crores today. 
    • The current market value of BPCL varies between ₹85,000 crores and ₹115,000 crores. The government’s share at present is about 53.3%, which is worth between ₹45,000 crore and ₹61,500 crores. We got the company for a cheap price.
    • Since 2011, the total dividend it has earned is about ₹15,000 crore, which is several times the present value of the investment of ₹622 crores. 
    • If we estimate the present value of all future income that the Government would earn, by using inflation and calculate the value of all future flows, it would forego future income of about ₹78,589 crores. 
    • The effective tax rate on profit before tax for the BPCL is about 34%, whereas for the private sector player it is between 25% and 28%. So there will be a loss in tax revenue for the Government after any privatization.
    • Financially, we as a nation are worse off by selling such a profitable venture. 
    • As the case of BPCL and several other PSU ‘Navratnas’ shows, they have given supernormal returns to the public exchequer. 
    • Instead of selling such high performing PSUs, we should be selling the loss-making ones.

Issue of the fiscal deficit target

    • The fiscal deficit target of 3.4% is now reduced to 3.3%. 
    • As the revenue collections are not enough, the Government is planning the sale of well-running PSUs to meet the fiscal deficit target. 
    • Next year? – If the Government meets its fiscal deficit target by the stake sale of various PSUs including the BPCL this year, how would it meet that target next year? 
    • RBI reserve – In spite of the huge one-time dividend from the Reserve Bank of India, we are far from meeting the deficit target. 
    • Absence of fiscal prudence – Nothing much will change in terms of the expenditure or revenues in the coming years. These strategic sales and dividends cannot be repeated every year.
    • How to reach the targets – The real way of meeting the targets is to cut out wasteful Government expenditure. Most of this is on salaries and pensions, and ensure that the bureaucracy delivers.

On national security

    • Natural resources, especially oil, are a strategic national resource. 
    • The United States maintains such an underground crude oil reserve to mitigate any supply disruptions. 
    • The U.S. over 600 billion barrels, China 400, South Korea 146, Spain 120 and India 39.1. India has a target to substantially increase its reserves. 
    • While China sticks to state-owned national resources, we are moving in the opposite direction. National security also depends on the economic power that a Government has.
    • We do have plans to build the world’s largest refinery in India, with the help of Saudi Arabia, but ownership and control will be in foreign hands. 
    • With the strategic disinvestments, we will lose Government control over both crude and refining. 

Conclusion

    • Through this strategic disinvestment, we are financially worse off, and strategically the nation finds itself in a vulnerable situation.
    • We need to see through the ideological narrative coming from the developed nations. They embraced free trade when it suited them and are now trying to embrace protectionism. 
    • China adopted a market system but does not allow this to cloud its thinking when it comes to strategic national issues; the control remains with the Government. 
    • India too needs to re-think its strategy.
Disinvestment in India

[op-ed snap] Making Air India’s disinvestment workop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Disinvestment in India

Mains level : Air India disinvestement


Context

Air India has witnessed a calamitous fall in the last four decades. 

Fall of Air India

    • It operated in a near-monopoly environment, but the pace of descent intensified when it faced competition. 
    • In the late 1990s, the airline’s service standards declined, and it was referred to as the Disinvestment Commission of India. 
    • It recommended dilution of government ownership to 40%. The effort did not succeed. 
    • After 2004, the descent was quick due to a series of reckless decisions, like the acquisition of aircraft in numbers far more than what it could afford or gainfully deploy; and the merger with Indian Airlines.
    • The airline was also weak due to doling out of seats by the administration to foreign airlines.

Lack of strategic direction

    • Air India’s precarious financial situation was first made public in June 2009 by the then-Chairman Arvind Jadhav. 
    • The government, instead of tackling the core problem, decided to focus on a financial package. 
    • The bailout package of over ₹30,000 crores, infused over an eight-year span ending 2021, has not helped Air India evolve into a robust carrier.
    • The airline’s survival depends on several factors: the induction of professional management with effective leadership, a sound financial package that does not come with political interference in its day-to-day operations, and unions allowing changes in work conditions and pays packages. 
    • In 2017, Niti Aayog recommended disinvestment. The government decided to not only retain 24% equity, it also wanted the acquirer to absorb a major chunk of the non-aircraft related debt. 
    • A proposal for sale has to suit the acquirer as much as the seller was thus overlooked. The offer found no takers.

Present situation

    • The government has put Air India for disinvestment. 
    • It is driven by the Centre’s anxiety to get rid of the airline. Thus, it can spare itself of the responsibility of further infusion of funds.

Way ahead

    • The government ought to ensure that it exits totally, giving freedom to the potential acquirer to transform it into a successful player. 
    • The cost of further infusion of funds if the exercise fails mustn’t be overlooked. 
    • As the product still commands a sizeable market share and has an extensive global network that no other Indian carrier can match, the government needs marketing skills.
    • All major stakeholders should be convinced that disinvestment is the best way forward. 
    • Only 1 in 9 passengers are currently patronising Air India. It will be only one in 12 in the next three years as capacity augmentation is undertaken by private airlines.
    • This competition cannot simply be matched by funds-starved Air India.
    • The government has to make a plan to address the medical-related concerns of serving and retired employees.

Conclusion

The disinvestment exercise this time should be thought of wisely and pursued with determination.  Only with it is linked to the prospect of transforming Air India into a robust carrier.


Back2Basics

Disinvestment

Disinvestment Policy in India.

Disinvestment in India

[op-ed snap] Push for the betterop-ed snap

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Disinvestment

Mains level : Current disinvestment India - challenges


Context

The Cabinet Committee on Economic Affairs (CCEA) approved the strategic disinvestment of five public sector enterprises – Bharat Petroleum Corporation Ltd (BPCL), Container Corporation of India Ltd, Shipping Corporation of India, Tehri Hydro Power Development Corporation (THDC) and the North Eastern Electric Power Corporation (NEEPCO).

Disinvestment target

    • 1.05 lakh cr – The proceeds from the stake sales will help the Centre move closer to achieving its disinvestment target of Rs 1.05 lakh crore for this year.
    • Disinvestment so far – only Rs 17,364 crore or 16.5% of its budgeted disinvestment target is met, as per data from the Department of Investment and Public Asset Management(DIPAM).
    • Revenue shortfall – Centre is facing huge shortfalls in both direct and indirect tax revenues. Its gross tax revenues have grown by 1.5% in the first half (April to September) of the current financial year.

Current disinvestment

    • BPCL – Of the five companies, the stake sale in BPCL is likely to be the biggest. The sale will be of interest to both domestic firms and major international players. 
    • The government could fetch around Rs 63,000 crore from its stake sale in the company.
    • Adding proceeds from the sale in the Container Corporation and the Shipping Corporation, Centre may earn more than Rs 70,000 crore through these three firms alone. 

Challenges

    • Less time – With only four months to go, the stake sales may not be wrapped up by the end of the financial year. 
    • Other PSU buying – It should not be another case of public sector firms stepping in to buy these entities to bail out the government. 
    • Transfer of assets – The sale of THDCIL and NEEPCO to NTPC, is essentially a transfer of assets between various arms of the public sector.

Way ahead

    • Plan – The government should draw a more ambitious, better laid out, medium-term plan for disinvestment.
    • Not for revenues – It should not be approached as merely an arrangement for plugging its revenue gaps. 
    • Calendar – It should draw up a list of potential candidates and release an advance calendar, indicating the period of disinvestment. This would help draw in more buyers.
    • Use of proceeds – should be only for the creation of new assets, not to meet its revenue expenditure.

Back2Basics

Disinvestment Policy in India.

Disinvestment in India

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

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.

 


Back2Basics

Disinvestment Policy in India.

Disinvestment in India

Govt begins process of selling enemy properties; issues guidelines


Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Enemy Property (Amendment and Validation) Act 2017, Enemy Property (Amendment) Rules, 2018, Enemy Property Disposal Committee

Mains level: Alternative measures adopted by the government to increase revenues


 News

The monetization of enemy properties

  1. The government has started the process of monetization of more than 9,400 enemy properties by issuing guidelines
  2. It has directed the office of the custodian to submit a list of all such movable and immovable assets within three months
  3. The Ministry of Home Affairs has also constituted a valuation committee at the district level headed by the district magistrate, and an inter-ministerial disposal committee, headed by an additional secretary, so that the process could be completed in a time-bound manner

Why this process?

  1. The move comes after the amendment of the Enemy Property (Amendment and Validation) Act 2017 and the Enemy Property (Amendment) Rules, 2018
  2. These provisions ensured that the heirs of those who migrated to Pakistan and China during partition and afterward will have no claim over the properties left behind in India
  3. The enemy properties were those left behind by the people who took citizenship of Pakistan and China

What happens to these ‘enemy’ properties?

  1. According to the new Act, ‘enemy property’ refers to any property belonging to, held or managed on behalf of an enemy, an enemy subject or an enemy firm
  2. The government has vested these properties in the Custodian of Enemy Property for India, an office instituted under the central government
  3. The office of the custodian should submit a list of all enemy properties to the central government
  4. The Custodian may sell the movable enemy property such as shares, with the prior approval of the central government, in one or more lots by itself or by authorizing any professional body for such a sale
  5. In case of a vacant immovable enemy property, the custodian or any authorized body may sell the property, in one or more lots to secure maximum sale price, with the prior approval of the central government

Enemy property disposal

  1. The central government will also constitute an Enemy Property Disposal Committee
  2. The committee shall give its recommendation to the central government for the disposal of the enemy property or the manner in which the enemy property may be dealt with and matters connected with it
  3. In case of vacant immovable enemy property, the Committee may recommend the purchaser offering the highest price for disposal of vacant immovable enemy property
Disinvestment in India

‘Centre to invite initial bids for Air India in a couple of weeks’


Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Reason behind the divestment of the Air India.


News

Important statement by the Civil Aviation Ministry

  1. The Ministry is engaged in the “important task” of finding buyers for Air India and its subsidiaries as well as for Pawan Hans
  2. The officials(of the ministry) are expecting the expressions of interest to be issued within a couple of weeks

Background

  1. The announcement came in the backdrop of the government paving the way for a stake sale in the debt-laden airline last year
  2. The Union Cabinet had in-principle approved divestment in Air India and the government followed it up by permitting foreign airlines to invest up to 49%, under the approval route, subject to certain conditions

Reason behind the divestment of the Air India

  1. With divestment, the focus is to leverage and monetise AAI’s balance sheet and facilitate a manifold increase in its spend, from the existing Rs. 3,000 crore annually
  2. The AAI proposes to spend Rs. 18,000 crore over four years on upgrading of airports
Disinvestment in India

Don’t divest AI, give it 5 years to revive: panel


Note4students

Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

From UPSC perspective, the following things are important:

Prelims level: Parliamentary panels

Mains level: Crucial suggestion by the parliamentary panel as the government is on the verge of disinvestment in the Air India(AI)


News

Suggestion by the Parliamentary Panel to the government

  1. This is not the appropriate time to divest government stake in Air India (AI)
  2. And it should be given at least five years to revive and its debt written off
  3. The panel has concluded that the government should review its decision to privatise or disinvest AI
  4. And explore the possibility of “an alternative to disinvestment of our national carrier which is our national pride”
  5. Important comment by the panel: It would be lopsided to assess and evaluate the functioning of AI solely from business point of view, as has been done by NITI Aayog

Other concerns noted by the panel

  1. It has concluded that the equity infusion in the national carrier[as part of the turnaround plan (TAP)] is adversely affecting its financial and operational performance
  2. And “forcing” the airline to take loans “at a higher interest rate to meet the shortfall
Disinvestment in India

NITI bats for divestment in 34 PSUs


Note4students

Mains Paper 3: Indian Economy, Resource Mobilisation.

The following things are important from UPSC perspective:

Prelims: Strategic disinvestment.

Mains level: Nothing Much.


News

Context

  1. Government think-tank NITI Aayog has recommended strategic disinvestment of 34 sick public sector units
  2. Earlier, the Prime Minister’s Office (PMO) had asked the think tank to look into the viability of sick state run companies.
  3. The Centre plans to raise funds to the tune of Rs. 72,500 crore through stake sale in PSUs this fiscal, including Rs. 46,500 crore from minority stake sale.


Back2basics

Strategic disinvestment

  1. In strategic disinvestment the government sells major portion of its stake to a strategic buyer and also gives over the management control.
  2. Under it, the strategic Partner, may hold less percentage of shares than the government but the control of management will be wit him.
  3. For example, in a PSU, where the government holding 51%, and out of this, sale of 25% to the strategic partner while the government holding 26% share also is a case of strategic sale. Here, the remaining shares (49%) will be dispersed among the public.
  4. The Finance Ministry has empowered the NITI Ayog to advise the government on the strategic disinvestment of the CPSEs.
  5. The procedure for strategic sale will be prepared by Department of Investment and Public Asset Management (DIPAM).
Disinvestment in India

Convicted companies will not be allowed to participate in PSU privatization


Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the DIPAM.

Mains level: It is one of the many steps taken by the government for proper implementation of divestment.


New disinvestment guidelines

  1. According to the new guidelines, the government will disqualify any company convicted for fraud or serious corporate offences from participating in the privatization of state-owned enterprises
  2. Any firm facing
    (1) a conviction by a court of law or
    (2) indictment/adverse order by a regulatory authority or
    (3) has faced market regulator Sebi orders relating to fraud
    will be disqualified

Earlier Criteria

  1. While selecting bidders earlier, the government used to look into the criteria like net worth and experience
  2. It has now decided to look into these additional criteria for qualification or disqualification of parties seeking to acquire stakes in central public sector enterprises (CPSEs)

Governments plan on Divestment

  1. The government has set a target of Rs15,000 crore to be raised from strategic disinvestment of PSUs in the current fiscal
  2. It has selected a host of companies, including Air India, for strategic stake sale and has fast-tracked the appointments of asset valuers and legal firms which would manage the process

Back2basics

DIPAM

  1. The Department of Disinvestment has been renamed as Department of Investment and Public Asset Management or ‘DIPAM’, a decision aimed at proper management of Centre’s investments in equity including its disinvestment in central public sector undertakings
  2. Finance Minister Arun Jaitley had announced renaming of the Department of Disinvestment in his budget speech for 2016-17
  3. Initially set up as an independent ministry (The Ministry of Disinvestment) in December 1999, the Department of Disinvestments came into existence in May 2004 when the ministry was turned into a department of the Ministry of Finance
  4. The department took up all the functions of the erstwhile ministry which broadly was responsible for systematic policy approach to disinvestment and privatisation of Public Sector Units (PSUs)
Disinvestment in India

Centre seeks advisers for AI disinvestment


Image Source

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: Much awaited step. Government was thinking about this step, long ago.


News

Appointment of Financial Advisers

  1. The Union government has floated an expression of interest (EOI) to appoint two financial advisers and one legal adviser for strategic disinvestment of Air India
  2. Government is taking forward the process to divest a stake in the ailing national carrier
  3. The Government has also formed a Group of Ministers (GoM) led by to draw the roadmap
  4. The decision to appoint advisers to steer forward the disinvestment process was taken by the GoM

Government’s plan

  1. The Government of India has in-principle decided to consider the disinvestment of the AI Group as a whole or its constituents fully or part thereof through strategic sale
  2. Government will also transfer the management control of the AI
Disinvestment in India

Govt clears strategic sale of Central Electronics


Image Source

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the CEL

Mains level: Government has well structured plan of divestment, this step is also a part of it.


News

100% Strategic Sale

  1. The government has approved a 100 per cent strategic sale along with transfer of management control of Central Electronics Ltd (CEL)
  2. Government is also is looking to appoint a legal firm for advising on strategic sale of CEL

Government’s Plan

  1. The government has budgeted to raise 72,500 crore in 2017-18 through stake sale in PSUs
  2. This includes Rs 46,500 crore from minority stake sale, Rs 15,000 crore from strategic disinvestment and Rs 11,000 crore from listing of PSU insurance companies

Particulars of the CEL

  1. It was incorporated in 1974, under the administrative control of Ministry of Science and Technology
  2. The CPSE is wholly owned by the government and has a net worth of Rs 50.34 crore as on March 2017
Disinvestment in India

Cabinet approves new mechanism to speed up strategic disinvestment


Image Source

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Particulars of CPSE

Mains level: Effective step by government for implementing its disinvestment strategy.


News

Panel for strategic Disinvestments

  1. The cabinet committee on economic affairs (CCEA) has mandated a panel headed by FM to oversee the asset sale process
  2. The panel will help to accelerate strategic disinvestments in central public sector enterprises (CPSEs)
  3. It will also help the government to raise more revenue from asset sales

Government’s Target

  1. The government has set an ambitious target of raising Rs 72,500 crore from disinvestment in 2017-18, including Rs 15,000 crore from strategic asset sales
  2. So far this year, the government has raised around Rs 10,000 crore through stake sales

What is strategic disinvestment?

  1. It implies the sale of a substantial portion of government stake in a CPSE with transfer of management control
Disinvestment in India

Centre to wind up Hindustan Cables


  1. The Cabinet has given its nod for a strategic sale of sick public sector firm Bharat Pumps and Compressors
  2. Also for the closure of Hindustan Cables that has stopped output since 2003
  3. It has also approved an outlay of more than Rs.4,800 crore to pay statutory dues to these firms’ employees and creditors
Disinvestment in India

PMO nod for closure of sick govt. companies


  1. News: NITI Aayog’s proposal for shutting down 17 sick or loss-making PSUs has received the go-ahead from Prime Minister’s Office (PMO)
  2. Strategic sales: Another proposal, aimed at reducing Govt ownership to below 51% in about 22 PSUs
  3. The approval is not for outright 100% sales
  4. Govt won’t exit these companies, but will go on to be a minority shareholder post disinvestment

Discuss: What is strategic disinvestment? What is the need for Govt to take up disinvestment of some PSUs?

Disinvestment in India

Centre begins stake sale in 51 firms


  1. News: The government plans to sell minority stakes in 51 listed as well as unlisted companies including RIL, ICICI Bank, Axis Bank, L&T etc., and might exit in 3 years
  2. Minority stake: A shareholding of less than 50% of a company’s equity capital which is not a controlling stake
  3. Government holds minority stake in these companies through Specified Undertaking of UTI (SUUTI)
  4. SUUTI was formed in 2003 as an offshoot of erstwhile Unit Trust of India (UTI)
  5. SUUTI is looking at selling the investments either through an OFS, block deal, bulk deal or regular sale through stock exchanges
  6. Impact: Sale would help the government in meeting its ambitious disinvestment targets
Disinvestment in India

NITI Aayog submits proposals for divestment- II


  1. The second set of suggestions is a separate list of 15 PSUs in which it has recommended strategic disinvestment on priority
  2. This list has been submitted to the Department of Investment and Public Asset management in the Finance Ministry
  3. Background: The Cabinet Committee on Economic Affairs had directed the Aayog to identify PSUs that the Department could take up for strategic disinvestment and also suggest norms for doing so
  4. Any disinvestment of government’s shareholdings, closure or mergers of PSU will need the Union Cabinet’s approval
Disinvestment in India

NITI Aayog submits proposals for divestment- I


  1. Context: The NITI Aayog has submitted two sets of recommendations to the Centre for strategic disinvestment of State-owned companies
  2. First is a list of recommendations on each of the sick and loss-making government-owned companies & there are about 74 such companies
  3. Closure: Suggested for about 25 companies in which revival plans were attempted but had failed
  4. After closure: Their assets, especially land holdings, could be disposed off and employees be offered voluntary retirement
  5. In the remaining cases, either mergers with other public sector units or strategic disinvestment is recommended
  6. In some companies, the Aayog preferred to let revival plans run their course, before taking a call on their future
Disinvestment in India

Centre plans to auction surplus land to industry


  1. Land bank: Centre is examining the possibility of making a bank of all its surplus land holdings across the country
  2. From this land bank, parcels could be auctioned to private industry
  3. Aim: To ensure that non-availability of land doesn’t dampen new investments and economic growth
  4. Other than for private industry, such land identified in Delhi, Mumbai and other metros could be used for urban renewal projects
Disinvestment in India

PSU strategic sale roadmap


  1. Context: NITI Aayog will submit a blueprint for divesting government’s stake in some PSUs and strategic sale of those that have been sick for a long time by this month
  2. Lists: First list will be of those PSUs where government can sell its stake to maximise proceeds from such divestments
  3. Another list of PSUs which have been sick for a long time and cannot be revived
  4. Aayog will recommend their closure and selling off accordingly
  5. Background: Budget 2016-17 had mentioned that NITI Aayog will identify Public Sector Units for strategic sale
Disinvestment in India

Value of PSU on sale to include market price of land


  1. News: The govt will include the market value of the land in the reserve price when a PSU is divested
  2. Reason: The asset valuation will be more appropriate than the equity share valuation for arriving at the reserve prices of PSUs
  3. Future: The govt has asked the NITI Aayog to identify the PSUs where the govt should exit from management control
  4. Strategic Sales: The govt divests management control along with its shareholding
Disinvestment in India

Centre earns $5 bn by PSU share sale this year


  1. Government’s disinvestment kitty has almost doubled this year with over Rs.35,000 crore garnered through PSU share sales.
  2. Govt. is targetting at least Rs.50,000 crore of funds from sale of the PSU shares in 2016.
  3. The govt. will look for right market conditions and positive global cues to resume its disinvestment drive in the new year.
  4. The trends in the crude and metal prices would hold the key for the new year, as planned portfolio largely comprises of commodity stocks.
Disinvestment in India

CCEA approves 10 per cent stake sale in CIL


The CCEA approved a 10% disinvestment in Coal India, the 3rd govt. stake sale in the company’s history.

  1. At the company’s current market capitalisation, it will fetch the govt. around Rs. 21,100 crore.
  2. This will go a long way in meeting the disinvestment target of Rs.69,500 crore for this financial year.
  3. Till now, the govt. was able to sell its stake in only 4 companies — Power Finance Corporation, Rural Electrification Corporation, Dredging Corporation and Indian Oil Corporation.
  4. The Dept. of Disinvestment has asked for the disinvestment target to be brought down to Rs.30,000 crore.
Disinvestment in India

Disinvestment: Rs.30,000 crore, a realistic target?



 

  1. The government raised around Rs.25,000 crore against the target of Rs.58,425 crore – we missed the targets again!
  2. The Dept. of Disinvestment now says that only Rs. 30,000 Crores is a realistic target and rest is just wishful thinking.
  3. For disinvestment in 2015-16, the government has a pipeline of over 20 PSUs for which it has cabinet approval of 10 % stake sale each in OIL, IOC, Nalco, NMDC, besides, 5 % in NTPC, ONGC, BHEL.
  4. Because of the pressure of high targets, the actual realisation gets impacted as strategy cannot be worked out properly.
Disinvestment in India

[cd explains] Disinvestment: Challenges & Opportunities


 


  1. The term disinvestment refers to the process through which the government offloads a portion of its shareholding in a PSU.
  2. Capital receipts so garnered will help in central government finances.
  3. Importantly, however, under disinvestment, government will remain the majority shareholder even if its post-divestment shareholding is smaller than before.

    The government hopes to garner Rs.69,500 crore of capital receipts this year from strategic sale and selling shares in unlisted companies.

Standing firm at 51 per cent

  1. Government ownership with at least 51% stake after divestment has been non-negotiable in most cases.
  2. Economic logic would suggest a further divestment in some PSBs to enable them raise additional capital.

The usual challenges

  1. Beware of the critics – Selling ‘family jewels’, as the critics of disinvestment call it, can never be popular – not with the unions nor with the politicians.
  2. Attempts to blunt the criticism by letting the market discover the price – through book-building process and so on – have not helped.
  3. Accountability & Timing issues – There is never a good time anymore than there is a correct price. Consequently, decision-making by the government is a thankless task.
Disinvestment in India

Cabinet approves 10% stake sale in IOC and 5% in NTPC


  1. The approvals are part of Rs 41,000 crore disinvestment target for the current financial year.
  2. Buoyed by diesel price deregulation, the government is looking at selling stake in India’s largest fuel retailer IOC for the second time in 13 months.
  3. The government currently holds 68% in IOC & 74% in NTPC.

    For the current fiscal, the government has identified more than a dozen PSUs for stake sale, including National Fertilizers, MMTC, Hindustan Copper and ITDC.

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