Govt stays course on PSE sale despite setbacks

Undeterred by the recent setbacks in its disinvestment efforts, the Narendra Modi government seems determined to stay the course. Its decision empowering public-sector enterprises or undertakings (PSEs) to carry out all manner of disinvestment in their subsidiaries, units, etc, suggests this resoluteness.

The much-awaited initial public offering (IPO) of Life Insurance Corporation opened about 8 per cent lower on the bourses on May 17. As Bizz Buzz reported earlier, BPCL privatization has been put on hold. This is said to be because there was only a single bidder for the oil major.

While disinvestment in Shipping Corporation of India (SCI) is on, doubts are being raised about the possibility of the transaction in this calendar year. Department of Investment and Public Asset Management (Dipam) Secretary Tuhin Kumar Pandey, however, said that this could be done.

The Cabinet approved on Thursday the proposal to empower the boards of directors of the holding or parent PSEs to recommend and undertake disinvestment in (both strategic disinvestment and minority stake sale) and closure of any of their subsidiaries, units, and stake in joint ventures, said a government press release. "The Cabinet has also empowered the Alternative Mechanism to accord 'in-principle' approval" to such disinvestment.

The Alternative Mechanism is a group comprising Finance Minister Nirmala Sitharaman, Minister for Road Transport & Highways Nitin Gadkari, and Civil Aviation Minister Jyotiraditya Scindia.

The process for undertaking the strategic disinvestment transactions and closures to be followed by the PSEs should be open, based on the principles of competitive bidding, and consistent with the guiding principles to be laid down, the release said. For strategic disinvestment, such guiding principles will be laid down by Dipam. For closure, the Department of Public Enterprises shall issue guiding principles.

At present, the boards of PSEs of Maharatna, Navratna and Miniratna categories can make equity investment to establish financial joint ventures and wholly-owned subsidiaries and undertake mergers and acquisitions, subject to certain ceilings of net worth. However, the boards do not have powers for disinvestment in and closure of their subsidiaries, units, etc.

Only Maharatna PSEs enjoy some limited powers, that too for minority stake sales in their subsidiaries. Therefore, PSEs needed the government's approval for disinvestment (both strategic disinvestment and minority stake sale) in and closure of their subsidiaries.

The decision to empower PSE boards is aimed at reforming the functioning of PSEs "will result in expeditious decision making and saving of wasteful operational/financial expenditure by the PSEs," the press release said.

This will help major PSEs like LIC, Coal India, and ONGC to sell off their subsidiaries. It is quite creditable on the part of the Modi government that it has not been discouraged or daunted by various hindrances to the process of privatization. It is not just the market conditions - BPCL's single bidder, lukewarm response to the LIC IPO - that are slowing down the selloff process; there are challenges in other spheres too.

On November 18 last year, the Supreme Court had directed the Central Bureau of Investigation to file a case to inquire into the alleged irregularities in the privatization of Hindustan Zinc Ltd. So, the government had to register a first information report (FIR). Then there are public intellectuals and loud trade union leaders who keep maligning privatizers. The government must remain steadfast in its endeavor to privatize PSEs.