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The NDA regime has stepped up efforts to strategically disinvest or privatise the government’s holdings in five state–owned companies, Bharat Petroleum Corporation Ltd, Container Corporation of India, Shipping Corporation of India, Tehri Hydro Development Corporation India Ltd and North Eastern Electric Power Corporation. This process entails sale of up to 50% (or even higher) of the government’s holdings, along with change in control. Together with an earlier decision to privatise the national carrier Air India, the government hopes this divestment will help meet its budgetary target of INR 1.05 trillion in 2019-20.

The rationale for exiting these companies is that the “government has no business to be in business” stated Petroleum and Natural Gas Minister Dharmendra Pradhan. These companies include profitable companies like BPCL and loss-making ones like Air India. BPCL will provide potential buyers 14 % of India’s oil-refining capacity and one-fourth of fuel-marketing infrastructure in one of the world’s fastestgrowing energy markets. THDC and NEEPCO, however, won’t exactly be privatised as they would be taken over by another state-run power major National Thermal Power Corporation and thus remain state-owned.

However, getting out of business altogether is easier said than done. This process attracts political controversy like no other reform, including opposition from trade unions. Privatisation the world over has been controversial as crony capitalists have cornered the sale of such assets at bargain basement prices - the Russian example comes readily to mind. The Vajpayee-led NDA regime privatised blue chips companies like Maruti Udyog Ltd and VSNL, besides several loss-making companies and hotels. But the sale of Centaur hotel had a whiff of scandal. These sales stalled before its term came to an end.

For such reasons, successive governments - since reforms kicked in from the early 1990s - have found easier to resort to non-controversial partial sales of equity in state-owned companies while retaining control. The proceeds from these sell-offs met recurring revenue expenditures rather than building new assets or strengthening the functioning of these enterprises. Since it came to power in 2014-15, the Narendra

Modi-led NDA government has aggressively pushed partial off-loading to meet budgetary gaps, accounting for as much as three-quarters of the cumulative receipts from such sales since 2010-11, according to union budgetary documents for 2019-20.

The NDA government has now shifted gears to privatize as it faces acute fiscal stress because of sharply declining GDP growth. Tax revenues are less buoyant when economic activity is slowing down. As of September, net tax receipts and non-debt capital receipts were only 37% and 17% respectively of budgetary targets for 2019-20. These shortfalls dictate the compulsion to garner more revenues from strategic disinvestment. Minister of State for Finance Anurag Thakur told Parliament that the union cabinet has given “in-principle” approval for the sale of strategic stake in 28 state-run companies, including Air India.

But to meet the budgetary target of INR 1.05 trillion by March 2020, this process must be done in a carefully planned manner. There is no warrant for rushing through strategic disinvestment of BPCL, CONCOR, SCI, THDC and NEEPCO and Air India as it might affect their valuations. According to current market prices, the government’s stake in BPCL could fetch INR 630 billion, while CONCOR and SCI could garner INR 129 billion. NTPC may offer INR 100 billion for THDC and NEEPCO. So far this year, the government has realised INR 174 billion from partial sales of equity in state-owned companies, taking the overall total close to the target. To be sure, the Narendra Modi-led NDA government in its first term tried to sell Air-India but there were no takers. Among other reasons, potential buyers weren’t enthused by the huge debt of the lossmaking carrier that touched INR 583.5 billion as of March 2019.

As the government’s finances are under pressure, it is keen to sell Air India as the yearly expenditure to run the airline is more than paying annual interest on its massive debt. To be successful the second time around, the government is seeking to ensure its sale by transferring a large part of the debt to a special purpose vehicle, Air India Asset Holding Ltd. The success of the government’s privatisation moves bears watching in the months ahead.

The NDA government has now shifted gears to privatize as it faces acute fiscal stress because of sharply declining GDP growth. Tax revenues are less buoyant when economic activity is slowing down. As of September, net tax receipts and non-debt capital receipts were only 37% and 17% respectively of budgetary targets for 2019-20. These shortfalls dictate the compulsion to garner more revenues from strategic disinvestment