3 min read.Updated: 11 Mar 2021, 12:20 PM ISTVinay K. Srivastava
The success of its disinvestment plan will depend on how effectively it is implemented. An independent commission with requisite powers and staffed by professionals or a separate ministry could be of help.
The Central Public Sector Undertakings (CPSUs) have played a vital role in the development of India’s economy. It is clear from the fact that in 1951, there were hardly 5 CPSUs with an investment of ₹29 crore and their number has increased to 348 with an investment of ₹16.4 trillion by the end of 2018-19. The CPSUs were established with an objective of achieving higher economic growth, self-sufficiency in production of goods and services, long term equilibrium of Balance of Payments and low and stable prices. They have been playing a strategic role in the economy, providing essential goods and services and holding dominant market positions in key sectors.
However, later on some of these CPSUs became white elephants, started incurring losses and became a fiscal burden for the country. As per the public enterprise survey 2018-19, there were 70 CPSUs that incurred losses of ₹0.32 trillion. It was about 0.16% of gross domestic product (GDP) and 1.96% of total investment. Their poor performance forced the government to change its stance and move towards disinvestment. In 1991, the window of industries that was reserved for the CPSUs was opened for private players. The policy of disinvestment of government equity in CPSUs started in 1991-92 through the new industrial policy of 1991. The Industrial Policy Statement stated that the government would divest part of its holdings in select CPSUs.
The disinvestment policy has primarily evolved through the budget speeches of finance ministers. It has changed over the years in terms of objectives, methodology and target-setting. At present, the country is facing economic disruptions due to the global pandemic. The pandemic has shrunk revenue and increased expenditure of the country. As the time required, the government is focusing on capital expenditure, especially on infrastructure, through privatization as a key strategy for the recovery of the economy.
Budget 2021 emphasizes infrastructure spending to create demand and strengthen competitiveness to put the economy on the path of growth. In this backdrop, the government announced ‘The Strategic Disinvestment Policy-2021’ (SDP21) in the Union budget for 2021. The objective of SDP21 is (a) Minimizing the presence of CPSUs including financial institutions (FIs) (b) post-disinvestment, growth of CPSUs/FIs via infusion of private capital, technology and best management practices (c) using the proceeds to finance various social sector and developmental programs.
The list of the government includes CPSUs, public sector banks (PSBs) and insurance companies. The policy has segregated all sectors into strategic and non-strategic. The government will divest all sectors except four strategic ones. These are (i) atomic energy, space and defense (ii) transport and telecommunication (iii) power, petroleum, coal and other minerals (iv) banking, insurance and financial services. In the strategic sector too, the government will limit its presence to a bare minimum. The remaining CPSUs of the strategic sector will be completely privatized. Niti Aayog has been asked to work on the next list of CPSUs for strategic disinvestment.
A mega privatization drive has been lined up by the government for the next fiscal of ₹1.75 trillion after having missed this fiscal’s target of ₹2.1 trillion due to the disruptions caused by the global pandemic. In the line, the government has accelerated the divestment of four PSBs: Punjab and Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI Bank. It is set to invite bids early next year from private players.
The success of the privatization plan would depend on the effective working of the Department of Investment and Public Asset Management (DIPAM). But we have seen how the target of disinvestment of the current fiscal was missed even though the stock market was touching new heights. The policy of disinvestment was handled by the Department of Public Enterprises during 1991-97. In December 1999, a separate Department of Disinvestment was constituted. It was renamed as the Ministry of Disinvestment in September 2001, further converted into the Department of Disinvestment and again became a Department under the Ministry of Finance in May 2004. The National Democratic Alliance 2 government renamed it as DIPAM.
Thus, there is a need for the revival of either the Disinvestment Commission or Ministry of Disinvestment as it had been abolished by the previous government. The government should constitute an independent commission clothed with requisite powers and staffed by professionals and researchers or a separate ministry to formulate and implement the government’s privatization plan.