Business Standard

AI breaks 19-year privatisat­ion jinx

- JYOTI MUKUL New Delhi, 8 October

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.

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