Centre’s disinvestment agenda bold, but not too rosy

While governments so far have been unable to achieve their annual disinvestment target, past experiences show that even private companies are prone to losses; moreover, public sectors like SBI, LIC and Indian Railways continue to be market leaders

Nirmala Sitharaman, media briefing, press conference, economic revival, lockdown, Narendra Modi, stimulus package
‘Does he [Rahul Gandhi] understand what monetisation is?’ Finance Minister Nirmala Sitharaman asked on Wednesday | File Photo

The Union government intends a major overhaul of its public sector companies, either through outright sale, closure or merger.

Finance Minister Nirmala Sitharaman who laid out a roadmap for the same in the Union Budget has, however, refrained from giving any specific timeline for achieving the objective.

The announcement of the government is remarkable in the wake of its failure, like previous regimes, in achieving the annual disinvestment targets promised in various budgets. Unlike privatisation or outright sale, through disinvestment, the governments have been selling part of their stake retaining overall control.


The government which used the word privatisation in its budget for the first time, has said that it would cease to do business in all but four strategic sectors namely: national security, critical infrastructure, energy and minerals and financial services.

Related news: FM sets target of ₹1.75 lakh crore from disinvestments

If the intentions of the government are followed by action, this would be the most significant change it would be bringing about in the working of the Central Public Sector Enterprises (CPSEs) since the Atal Bihari Vajpayee era. The former NDA prime minister had sold strategic stakes in government-owned companies such as VSNL, Maruti Suzuki and Balco, but even that regime had not envisaged closure/merger/sell-off of hundreds of public sector units. As opposed to this, the Narendra Modi government is already relinquishing its ownership in several companies, offering a wider role to the private sector in areas which were so far the sole domain of the public sector.

In coal mining, the government has ended the historical monopoly of government-owned Coal India. Many smaller airports are being offered to private companies as public sector Airports Authority of India (AAI) failed to take advantage of rapid passenger growth. The new private operators are being handed over these airports with terms that are different from the conditions under which the large ones like Delhi and Mumbai airports have been operating. Even train travel, which has always been seen as the preserve of public sector as it offers subsidised services to a large economically weaker population is now beginning to witness ‘privatisation’. The Indian Railways plans to offer select trains to private parties and this means limited fare concession options for passengers. Railway stations are also being leased to private parties for development and upkeep.

New Policy

All existing Public Sector Enterprises including banks and insurance companies are being brought under the new policy. It classifies companies into strategic and non-strategic categories. Under the strategic sector, the government seeks to keep a “bare minimum” list of CPSEs and privatise, merge or close the remaining ones.

Non-strategic sector CPSEs will either be privatised or closed. NITI Aayog has been asked to identify companies for disinvestment. Also, a Special Purpose Vehicle, in the form of a company, will be set up for monetising non-core assets (mainly surplus land) of CPSEs. The new policy would evolve a revised mechanism for closure of sick or loss making units.

Strategic Sectors

Atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services are defined as per the new list. In other words, strategic sectors where centrally owned companies would continue to function are national security, critical infrastructure, energy and minerals and financial services. Certain CPSEs like major port trusts, AAI and those undertaking security printing and minting, will not fall within the purview of the new policy.

The Working

A ‘Group of Ministers’ or what is known as an alternative mechanism for strategic disinvestment will have the final word on each CPSE. This group will comprise ministers of finance, road transport & highways and representatives from the concerned administrative ministry of the CPSE. The Department of Investment and Public Asset Management (DIPAM), which manages government equity in public sector companies, will approach the union cabinet for strategic disinvestment of a specific CPSE on a case-to-case basis.

Related news: The math behind Railways’ privatisation project

The Numbers

As per the annual survey of the Ministry of Heavy Industries and Public Enterprises (MoHIPE), there are 249 operational CPSEs in India. As of March 2019, another 86 companies are under construction. The CPSEs have been holding a dominant market position in critical sectors such as petroleum, crude oil, coal, power, steel, mining, transport and logistics. The largest number of CPSEs are under the Ministry of Power (70) followed by 33 in MoHIPE and 27 in the Ministry of Railways. If the government actually exits from all companies except those in the strategic sectors, then it could be easily concluded that hundreds of public sector companies would be shuttered or sold off, leaving only a handful.

The Frontrunners

The CPSEs that are likely to be first off the block are: BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam limited and Air India. These are among the CPSEs whose disinvestment proceedings should be completed within financial year 2021-22. Apart from IDBI Bank, a proposal of privatization of two public sector banks and one general insurance company will also be taken up next fiscal. The IPO of LIC is also on the cards. The government has also promised to incentivise those state governments which would take up disinvestment of their public sector companies owned by them. The finance minister has promised to work out an incentive package for such states.

The Track Record:

If one were to ask how successful the central government has been in its efforts to give up ownership of companies till now, the answer would be mixed. This has not led to any bountiful gains. For instance in telecom and aviation sectors, the public companies such as Air India and BSNL/MTNL have gradually ceded control and allowed entry of multiple private operators.

The service standards have improved, private companies have offered a variety of new services, improved its geographical spread and penetration. For instance telecom services are now widespread due to private participation. In both the sectors while the private companies have flourished, the public sector companies have not only suffered, they slipped from bad to worse— from monopoly market leaders to loss making ones operating on the margins.

Related news: What privatisation of banks would mean for government, customers and shareholders?

But there are other challenges. Today, even private companies, both in telecom and civil aviation sectors, are in deep financial trouble (the symptom predates COVID) due to skewed tariff policies and some historic baggage. The abundance of private operators has done little for the viability of either sector. Now besides the public sector companies, even the private operators are seeking government concessions.

Relevance of PSUs:

The public sector may have lost much of its relevance in public discourse over the years, but it continues to have a sizeable presence. As per the survey of 2018-19, 249 central PSEs employed over 15 lakh people and paid the government a neat ₹3.69 lakh crore in various levies. This was higher by nearly ₹1,010 crore, compared to the payment in the immediately previous fiscal – so government earnings from CPSEs increased. Also, many CPSE stalwarts remain market leaders. SBI is India’s largest bank; LIC remains the market leader in life insurance; Coal India is the world’s largest coal company and so on. The Indian Railways transports nearly 23 million people every single day across its vast network, among the largest anywhere in the world.


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