More Central Public Sector Enterprises (CPSEs) on Govt’s List for Privatisation

Why is it so important?

The disinvestment of CPSEs has become quite a popular discourse these days. According to the news published on the website of Financial Express – many large and medium-sized CPSEs, Steel Authority of India (SAIL) and construction firm NBCC (India) are likely to feature on the initial list of firms for privatization, as the government embarks on the path of privatizing or closing down all CPSES in the ‘non-strategic sectors’ in a phased manner.

Other CPSEs likely to be on the first list are Madras Fertilizers and National Fertilizers, an official source said.

The Centre’s 65% stake in primary steelmaker SAIL is worth about Rs 29,600 crore at the current market prices, while its 61.75% stake in NBCC is worth around Rs 5,200 crore.

SAIL owns five integrated steel plants at Asansol, Bhilai, Bokaro Durgapur and Rourkela. It has also three special steel plants along with a ferroalloy plant. Thanks to a spike in global steel prices that reflects on the domestic market too, the company reported a net profit of Rs 3,850 crore in Q1FY22 compared with a loss of Rs 1,270 crore in the corresponding quarter a year ago. On Tuesday, the SAIL stock closed at Rs 110.35 on the BSE, up 1.05% from the previous closing price.

Mr. Tribhuvan Darbari, MD & CEO Texmaco Defence Systems Pvt Ltd and Chief Executive (Corporate Business) Texmaco Rail & Engineering said that the disinvestment would unlock capital for use elsewhere – especially in public infrastructures like roads, power, transmission lines, sewage systems, irrigation systems, railways and urban infrastructure.

Mr. Tribhuvan Darbari also mentioned that Hon’ble Prime Minister Shri Narendra Modi, in a speech in Parliament, had outlined the rationale of the move by suggesting that the country needed to have faith in the private sector and that it was not tenable to have Indian Administrative Service officers run enterprises of all kinds

Reference– Times of India: PM Modi bats for privatization, says ‘govt has no business to be in business’

The idea of privatization is not new. If we go through the pages of history, we’ll find that the idea has waxed and waned with political expediency. What makes its appearance in 2021 significant is that the idea has moved beyond mere jaw-boning.

Talking about the history of privatization, Mr. Tribhuvan Darbari also added that the balance of payment (BoP) crisis in early 1990s changed the official narrative about PSUs — from the “foundation of modern India” to “the government has no business to be in business”. In order to bring the economy back on track, the PV Narasimha Rao government (June 21, 1991- May 16, 1996) launched economic reforms by ending the era of license-quota raj and encouraging privatization.

However, the decision of the Government for the disinvestment of CPSEs in the non-strategic sector has been taken carefully after immense brooding and discussions over the reports favoring the privatization of these CPSEs. Several reports and surveys suggest that most of the privatized CPSE witnessed improvement in net worth, profit, gross revenue and sales growth after the transition.

Privatization affords the monetization of assets, caps erosion of public wealth, frees resources for human and physical infrastructure and promises the upside of enhanced growth as enterprise productivity improves.

It is instructive to know how China migrated from abject poverty to prosperity. It sequenced its reforms for growth — it first modernized its agriculture, opened FDI into the real sector and captured global trade. When India attained Independence, it liberated political rights but shackled economic liberties. Post-1991, it opened up the financial sector but constrained FDI in manufacturing. It joined GATT and then WTO without acquiring the bandwidth to meet competition. And till recently, it kept farming, its largest private sector, under fetters.  The consequences are manifest in the data on income and inequality.

Mr. Tribhuvan Darbari suggests that the disinvestment, preferably through the route of strategic sale, will bring in higher profitability, promote efficiency, increase competitiveness. Moreover, it will also promote professionalism in management in CPSEs.