The purpose of shedding stake in public sector undertakings is to maximise returns for the Centre and boost efficiencies of these companies. But the present approach of stake sale needs an overhauling to inculcate professionalism and autonomy to the divesting authority.

Citing the experience of Temasek Holdings Company in Singapore, the Economic Survey has proposed that the Centre transfer its stake in listed Central Public Sector Enterprises (CPSEs) to a separate corporate entity. This entity will be managed by an independent board and mandated to divest the government stake over a period of time.

Wealth creation

The strategic disinvestment of government shareholding in CPSEs will boost efficiency and aid in wealth creation. This approach will help realise efficiency gains from privatisation in the Indian context and bolster the case for aggressive disinvestment of CPSEs.

The Survey assesses that there has been an improvement in financial indicators such as net worth, net profit, return on assets (ROA), and return on equity (ROE) of the privatised CPSEs. Privatised CPSEs have been able to generate more wealth from the same resources, the Survey said, after an analysis of the before-after performance of 11 CPSEs, which underwent strategic disinvestment from 1999-2000 to 2003-2004.

It is also hard-selling the government’s agenda to divest stake and transfer management control of Bharat Petroleum Corporation Limited (BPCL).

A study in contrast

To support the argument, the Survey compares the share price movement of BPCL with Hindustan Petroleum Corporation Ltd (HPCL). It argues that there has been an increase in the value of shareholders’ equity of BPCL by around ₹33,000 crore since the disinvestment was announced in September 2019.

HPCL’s share price did not reflect a similar impressive movement. According to the Survey, the ₹33,000-crore increase translates into an unambiguous increase in BPCL’s overall firm value, and thereby a rise in national wealth by the same amount. The higher share price is, thus, on account of shareholders expecting the company’s performance to improve significantly post-disinvestment.