Disinvestment is down, not dead

Is disinvestment dead? The much-awaited initial public offering (IPO) of Life Insurance Corporation opening about 8 per cent lower on the bourses on May 17 and trading lower than the issue price since then; the sale of BPCL has been put off. So, one may be tempted to conclude that the privatisation process is in a deep freeze, if not dead. However, the process can be revived if the government decides to take the setbacks into its stride and stays the course. Abandoning or slowing down privatisation would be an easy but wrong response to the hindrances.

Public sector enterprises or undertakings (PSEs, also called PSUs) should be sold for several reasons. First and foremost, as Prime Minister Narendra Modi has said more than once, the business of government is not business. Instead of running hotels and steel mills, politicians and bureaucrats must focus on governance.

Second, PSEs are increasingly becoming a drain on the economy. In December last year, the Comptroller and Auditor General (CAG) released a financial audit report on the state of Central CPSEs. The number of state-run companies and corporations making profit came down to 224 in 2019-20 from 233 in 2018-19. The profit earned too declined to Rs 1,40,976 crore in 2019-20 from Rs 1,77,758 crore in 2018-19. Unsurprisingly, the return on equity (ROE) of 224 CPSEs also decreased to 15.31 per cent in 2019-20 from 18.69 per cent of 233 CPSEs in the previous fiscal.

The CAG report also highlighted the continuous decline in the return on capital employed (ROCE)—from 11.79 per cent in 2017-18 to 10.47 per cent in 2018-10 to 6.38 per cent in 2019-20.

Public sector banks (PSBs) are not included in CPSEs. PSBs too have proved to be white elephants. Between 2016-17 and 2020-21 alone, the government had to infuse Rs 3,10,997 crore in PSBs for the purpose of recapitalisation. It needs to be mentioned that this was all taxpayer money.

To what avail? After incurring collective losses for five straight years between 2015 and 2020, PSBs earned a combined net profit of Rs 31,820 crore in 2020-21.

PSB recapitalisation brings us to the third point: there is no way that State-run entities, be it CPSEs or banks, can be made sprightly companies which fill the exchequer and galvanise the economy, as was the purpose when these were created decades ago. There are numerous CPSEs which received several revival packages—but couldn't get out of coma. The government should learn from this experience.

It needs to be mentioned here that privatisation has never been an easy exercise. When the Atal Bihari Vajpayee government decided to sell Balco to Sterlite in 2001, there was a lot of resistance to the sale. Right from the trade union leaders to the Opposition leaders in New Delhi to the then Chhattisgarh chief minister Ajit Jogi—everyone was against it. Even elements within the Sangh Parivar were opposed to privatisation, but the government went ahead and it did happen.

When the Modi government recommenced privatisation after a gap of almost two decades and decided to sell Air India, it faced a lot of criticism. Its perseverance paid: today the taxpayer doesn't have to pay for the losses of the so-called national carrier which ran into tens of thousands of crore. Perhaps it was called the national carrier because the nation carried it!

In a nutshell, the government must keep the privatisation process on, the recent setbacks notwithstanding.