The Modi government has decided to undertake a major privatisation drive starting this October. This includes stake sales in LIC, IDBI Bank and Bank of Maharashtra. The government will also aim to sell Bharat Petroleum and Air India, and invite private sector investment in six airports. The logistics company, CONCOR, and a few other assets like railway stations are also on the block.

The fact that the government is keen to go ahead with its highly ambitious divestment programme is apparent from Union Finance Minister Nirmala Sitharaman’s reported remark, while speaking with Hero Enterprise chairman Sunil Kant Munjal, that the government was, as part of its ‘Aatmanirbhar Bharat’ policy, opening up all sectors for private participation. The final call on which sectors would be called ‘strategic’ had not been taken yet, she reportedly said, and added that she could not pre-empt such an announcement.

“In those sectors which we are going to call strategic, the private sector will obviously be allowed to come in but the public sector will be limited to a maximum of four units,” she said. Ms Sitharaman said this would lead to consolidation of public sector undertakings (PSUs) as well as scaling up of their operations. With regard to extending credit to the industry, Ms Sitharaman said that under the Emergency Credit Line Guarantee Scheme (ECLGS), micro, small and medium enterprises (MSMEs) can avail loans. As of July 23, 2020, the total amount sanctioned under the 100 per cent ECLGS by public and private sector banks stands at Rs 1,30,491.79 crore, of which Rs 82,065.01 crore has already been disbursed. “Now I am pushing the banks saying that it’s not their risk, we have taken the risk on ourselves, they should now facilitate the process...” “We have very clearly told the banks that they are not going to sit in judgement on anybody’s viability. Now it is the question of giving them resources, hand-holding them so that they survive,” Ms Sitharaman added.

UNINTENDED EFFECT

Meanwhile, the government, even while raising its disinvestment targets, may also have been shooting itself in the foot. In the past five years, the Centre’s PSU divestment target of Rs 3.84 trillion was double the target set in the preceding five years. The government looks set to achieve about 83% of its target for the years between FY16 and FY20. However, in the wake up of such a highly ambitious divestment plan, valuations of PSU stocks have fallen. The Nifty CPSE index has underperformed the Nifty 500 index by as much as 65% in the past 10 years.

This obviously hurts the government because it is still sitting on paper worth over Rs 11 trillion in listed firms, the value of which continues to erode by the day.

Besides, the coronavirus pandemic has cast a further shadow on the divestment programme. However, considering that the financial health of most of India Inc is precarious due to the ravages of the pandemic, one wonders whether the entire privatisation drive will end up as a one-pony race. The government is, however, asking companies to at least apply so that they can show some competition among bidders, even though some of the bids could be frivolous ones.