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Business News/ Opinion / Views/  Opinion | How to set the sell-off ball rolling once again

The government is reportedly drawing up plans to sell its stake in several state-run companies as part of its disinvestment programme for this financial year. A clutch of companies has been identified for the sale of minority stakes, and a list of companies for strategic disinvestment—where the government hopes to reduce its ownership to a minority holding—has also been sent to the Prime Minister’s Office for approval. Now that half this financial year is almost over, the urgency to fast-track these sales couldn’t have been any higher. Of the 1.05 trillion disinvestment target set for 2019-20, only 12,357 crore, or 12%, has been raised so far. Of course, the government could always engineer a last-minute rescue, by having one state-run company buy the stake of another—like the ONGC-HPCL deal last year—or by having Life Insurance Corporation subscribe to share offerings, but such a strategy could erode the agenda’s credibility. It’s best if disinvestment is done to achieve efficiency aims. Firms that would perform better in private hands than public should be allowed to change owners.

For better price realizations on its shares, the government may be tempted to wait for market conditions to improve. But markets are subject to various vagaries, and there is no saying what would be an appropriate time for disinvestment. If a more efficient economy is the objective, then government equity should be offloaded regardless of market index levels. More importantly, the government should resist imposing conditions that make stake sales unattractive. A strategic buyer of a firm would need a free hand to reorganize operations as it deems fit. In the case of Air India, for instance, the Centre had stiff riders on matters such as the retention of employees, mergers of ancillary businesses, and so on; it also insisted on retaining a 24% stake in the airline. With a heavy debt burden thrown in, it was little surprise that Air India failed to attract even a single bid despite two attempts.

Not only does the disinvestment process demand clarity on its main goal, it needs to be made investor-friendly. If this means that some state-owned companies need to be privatized outright, with no strings attached, then that should be the way ahead. The assurance that the government would cease to exert control may well be necessary for prospective buyers to see value in taking over. Private turnaround plans often include staff downsizing; this should not pose a political problem if the government explains that such decisions are for a company’s new owner to take. In the case of profitable public sector units, sell-offs tend to meet even more resistance, most fiercely from employees who fear for their jobs. Yet, many of these are likely to do better under private management. Also, investor appetite for such companies is likely to be higher. The successful sale of a high-profile profit maker could even generate enthusiasm for the entire programme. Much depends on the government’s advocacy of the idea. “The government has no business being in business", for example, may sound extreme, but could help win popular approval, especially if combined with the rationale that the state should focus on governance, not on activities that private parties are better equipped to handle. Of course, companies that are vital to the state’s strategic interests cannot be sold off. But most businesses owned by the government surely can.

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Updated: 17 Sep 2019, 10:00 PM IST
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