AI breaks 19-year privatisation jinx
The privatisation of government-owned companies has resumed after a hiatus of almost 19 years with the Narendra Modi government deciding to sell Air India to Tata Group. The Centre had been trying to privatise public sector enterprises (PSES) for four years through what it safely labels “strategic sale”.
A list of 20 firms was drawn up in 2017 but the investor community evinced little enthusiasm for them. The last time a PSE was privatised was by the Atal Bihari Vajpayee government, which demitted office in May 2004. There were a series of controversies that came with it, leading to successive governments dropping strategic sale from their agenda. While Air India was on the initial list of 2017, Bharat Petroleum Corporation Ltd, Container Corporation of India, and Shipping Corporation of India were later added to the government’s privatisation plans on November 20, 2019.
In its second term, a more confident Bjp-led government decided to go headlong into the privatisation initiative to help it meet its disinvestment target.
Under a new policy notified in February 2021, government ownership in four notified strategic sectors will be kept at a “bare minimum”. The companies in these sectors will be considered either for privatisation, merger, or making them subsidiaries of other PSES, or closure. Privatisation will be the course of all PSES in the non-strategic sectors wherever feasible, or else they will be closed.
With this, the strategic sectors of petroleum, airlines, railways, and shipping became part of the government’s privatisation programme. The Modi government till now has followed the less risky route of selling PSES to its own companies rather than private promoters. Oil and Natural Gas Corporation, for instance, bought 51.1 per cent in Hindustan Petroleum Corporation in January 2018. Power Finance Corporation bought Rural Electrification Corporation in March 2019 while NTPC bought NEEPCO and THDC the following year in March 2020.
The Vajpayee government courted controversy when it divested Bharat Aluminium Corporation in 2001 and Hindustan Zinc in 2002. Both companies went to the Anil Agarwal-promoted Vedanta group. The Centre, both in the 10-year Manmohan Singh tenure and even the first term of Narendra Modi, however, continued to hold residual shareholding in them despite contractual obligations to divest, owing to legal tangles. The Vajpayee government sold majority stake in nine firms — Modern Food Industries, Balco, Hindustan Teleprinter, Computer Maintenance Corporation, Hindustan Zinc, Videsh Sanchar Nigam, Indo Burma Petroleum, Indian Petrochemicals Corporation, and Paradeep Phosphates between 1999-2000 and 2002-03 through the strategic sale route in which blocks of shares, along with the management control, passed on to strategic partners.
Barring IBP, which was bought by Indian Oil Corporation, the remaining companies were privatised. Besides, the government divested its stakes in two smaller firms, Lagan Jute Manufacturing Company and Jessop & Company, and 19 properties of Indian Tourism Development Corporation and three properties of Hotel Corporation of India during 1999-2000 and 2003-04.
After political and legal controversies erupted over this, the UPA government in May 2004 adopted a cautious approach. Its National Common Minimum Programme spelt out the policy of giving full managerial control and commercial autonomy to profit-making companies instead of privatisation. Parts of government equity were to be sold through initial public offers and follow-on offers without changing the character of the PSES with the government retaining at least 51 per cent control. Prominent companies listed during the UPA tenure included NTPC, Power Finance Corporation, Coal India, and Power Grid. The UPA government on January 27, 2005, decided to list profitable CPSES with a net worth of more than ~200 crore either in conjunction with a fresh equity issue or divesting government stake.