The Interim Budget for 2024-25 did not find a mention of disinvestment of public sector undertakings (PSUs) that had been a focus of the government for the past years. The government has also not met its target for the previous year. It was set at Rs 51,000 crore. The government has made disinvestments worth around Rs 10,000 crore so far, 20% of its original target.
Secretary of the Department of Investment and Public Asset Management (DIPAM) Tuhin Kanta Pandey told The Core that the disinvestment of entities held by the government was a long-drawn and complicated process. Several factors had to align for it to happen. “You have to call for expression of interest. You have to do a public thing, there will be parties who will be selected, they will do due diligence of the company, hundreds of contracts, hundreds of things go into that examination in a virtual data room, then there is a draft share purchase agreement that needs to be negotiated,” he said highlighting only part of the process of disinvesting a PSU.
Since the 2022 Budget, there have been conversations around the privatisation of banks and disinvestment of PSUs. In the FY22 budget, finance minister Nirmala Sitharaman announced that two state-run banks, along with IDBI Bank, would get privatised in the year.
However, to date, the names of these banks have not been revealed. The government has also not started the bidding process for IDBI Bank. Only two Central Public Sector Enterprises (CPSEs), Air India and Central Electronics Ltd, were privatised in 2021, the first since 2003-04.
The DIPAM Secretary has also recently said that the strategic sale of the IDBI Bank will be completed in the coming fiscal year.
Speaking about the government’s current standing on disinvestment and privatisation, Pandey said, “If we just keep on holding our shares, it's like a close thing. When you are making it more open, you are partaking in it. And we are also deepening the stock markets. We have the commercial enterprises, they should perform in a manner where they're constantly being looked at by the stock market and the investors. The enterprises themselves are in a position to raise resources from the market, rather than depending only upon the government.”
In an interaction with The Core, Pandey also spoke about the government’s philosophy and thinking on disinvestment and privatisation today and what will be their road map in the coming years.
What is the government’s philosophy and thinking on disinvestment and privatisation today? Will the government continue to be the shareholder in the businesses?
What we are saying is that disinvestment is there as a strategy. Because right from the beginning, as we said, for many, many years, since 1991, we have been talking of reforms. One of the reforms in respect of the public sector is to list them, to bring them to the market. And when you bring to the market — which means essentially, you are disinvesting a certain number of shares and allowing those shares to be held by the public — and to that extent, make our enterprises more accountable to the market. If we just keep on holding our shares, it's like a close thing. When you are making it more open, you are partaking in it. And we are also deepening the stock markets. We have the commercial enterprises, they should perform in a manner where they're constantly being looked at by the stock market and the investors. The enterprises themselves are in a position to raise resources from the market, rather than depending only upon the government.
Since 2014, we have accelerated that process. Eighteen public sector enterprises were listed since 2014, much more than what was there in the last decade. So, one is the disinvestment of minority stake sales. The second one is privatisation or strategic disinvestment. In strategic disinvestment, the government is basically exiting. So, it is the next level of reforms, where you are saying that the government should not be in the business. So, we should actually have a chunk of equity along with the management control, which is passed down, which is also a part of our policy.
There is a new PSE ( Public Sector Enterprises) policy in 2021, which has also been in the public domain. The policy says that we could retain a certain bare minimum in strategic sectors and for the non-strategic sector, we’ll exit. In the policy, it is mentioned that timing etcetera, will depend upon several factors. It's like a broader policy intention, but actual implementation of that will roll over time depending upon how we find the circumstances, the bidders and the capability, our own administrative visibility. So, both the things are on. But we are not making the whole process very contingent. Because, for macroeconomic reasons you have to have a fiscal deficit within certain limits. Initially, there was a plan and then there was Covid, and then there was a revised plan. So, we want to stick to that plan as well.
But we are not really saying that this disinvestment earlier has been held and, fiscal deficit will be possible only if we disinvest. But with the fiscal deficit in a 47 lakh crore budget, we will have lots of revenues and lots of expenditure. That's the bulk of it and the rest is borrowings. So, if we want to reduce borrowing, which is the fiscal deficit, in that case, we need to look at our expenditures and revenues, they are far more significant than one line entry of disinvestment. Excessive reliance used to be placed (on disinvestment), which is actually not the case. There is a paradigm shift. That means, you carry on with an opportunity, but don't just say that we will have big and bigger numbers and make our fiscal deficit strategy contingent upon disinvestment strategy because disinvestment itself is a market factor. And secondly, if we are into a space, in that space there are also minority shareholders. We have to see the wealth which is created, basically the shares and enterprises. They should not be hampered. Both the government and our partners who have come in as shareholders, must have confidence that these enterprises not only are managed well, they are growing, they are efficiently managed.
Will it be right to assume that the government wants to continue to be a shareholder in the business?
We have to be mindful of this. Now, when we are a market player, let's do it in a manner that many of the other countries do. Total returns are also important. It's not merely disinvestment. So, this single line approach, which was actually like, typically economists will tell fiscal deficit means do disinvestment. Now, they do not know disinvestment and the connection with the dividend. So, there is a stream of income, which is also coming into the budget.
For example, if we disinvest everything then or for all future years the dividend will be zero. So, what happens to your non-tax revenue, which is also part of the budget resource? So, there was a narrative, where we are not able to see the holistic nature of public asset management. We have highlighted public asset management, particularly, because this demonstration has happened. Last three years exactly, this is what we have been working on. And now, we are seeing it almost like an outcome. When we say that, 15 lakh crores have become a market cap of 58 lakh crores, how does it come in? Performance, communication of performance, people trusting shareholders, taking care of everything, capex programmes, all put together is the reason why the stock markets are in a way. We are restoring the trust of the stock market to the public enterprises. In between, we had relatively, a decline in the public interest in the stocks of the PSUs.
If we look at the disinvestment model followed in the UK, how can it be implemented in India? If not, why is it different?
The British privatisation happened in the early 80s, and late 70s. It was in a certain context. So, this was called a big bank privatisation. Today, we are talking in 2023. Covid had certain things, so ours is a balanced approach. We have a new PSE policy, which does emphasise privatisation and strategic disinvestment. It has to be done over a period of time. So, it's not for a day, it's not for two days or two years.
Now, in the meanwhile, you have enterprises. Our policy also doesn't say it is a complete exit from the public sector. It doesn't say so. So it's a balancing thing, what we are saying is in public asset management, the government's exit from business also will be paced, it will be over a period of time. And meanwhile, you cannot say that, we will not have any disinvestment. Meanwhile, we will not say we will not add value, it's not binary, this or that doesn't work that way.
Are there any particular sectors or companies that are likely to be considered for disinvestment in the upcoming years?
There is a new PSE policy just to be gradually implemented. Disinvestment has different standards, there is a listing phase, there is also a dilution phase, then there could be privatisation or there could be retention of that organisation. So, disinvestment is of a different kind. Then the total resources which are being pushed to the government are also from different sources; it is also dividends, it is also disinvestment receipts. So it's, again, both the resources or something that comes from asset monetisation. So we are emphasising the holistic nature of these and the way we should look at them holistically.
In the policy, sectors are mentioned — which are strategic, which are non-strategic. As on date it is only IDBI Bank, which is a private bank. Although, in the nature of it, the way the market understands is no, it is not a private bank. Because it’s LIC (Life Insurance Corporation) and the government which have got the majority, but that is one where strategic disinvestment has been attempted at the moment.
Considering several PSUs, especially PSU banks have been doing considerably well, does it change the disinvestment target in any way?
Our policy is not saying that if it is a loss-making (company), then we will do; if it is a profit-making we won’t, that's not the policy. Whether you will privatise or not, it doesn't mean if it is not giving any value or if it isn't a very bad state and only we will privatise otherwise not. It's not that. It is again contingent on several factors. When I say privatisation is not like doing a tap. You have to call for expression of interest. You have to do a public thing, there will be parties who will be selected, they will do due diligence of the company, hundreds of contracts, hundreds of things go into that examination in a virtual data room, then there is a draft share purchase agreement that needs to be negotiated. Then after that is frozen, then the financial pits are called, then there is a reserve value fixation, if you exceed a benchmark reserve value, then you can choose the best winner. Then, there are a number of conditions that need to be fulfilled through different regulators and other actions. Then like in typical amendatory transactions, it is very long and time-consuming.
Even in the private sector also, they started but they do not fructify. And even then they fail because till the last moment, till the time of share transfer, all the different contingencies may come in and lead to success or failure of that transaction. Because there, the question is passing control. The easier thing is when we remain in control. But we are only diluting a certain portion of the shares in the market, that's easier done, but there also we have to keep in mind this value principle. We are highlighting that and we are also highlighting the difficulty in the privatisation, the process itself. Essentially it will not be that you can do 50 organisations together. There are many many places where there have been no bids. For bids in Pawan Hans, we were successful only for the fifth time in getting through the process. Even there (Pawan Hans) also, that particular bidder, they got penalised by the NCLT (National Company Law Tribunal) and we had to call off. So, the privatisation process is a longish transaction contingent on several factors.