The bolder option

Over a year into the Modi regime, one area in which there is a lack of clarity about the Centre’s plan of action is the public sector disinvestment programme. Last year, it sold minority stakes in some public sector units at the nth hour, and ended up short of its disinvestment target. This fiscal, it has promised an early start to disinvestments, after setting an even more ambitious ask of ₹69,500 crore — ₹41,000 crore through minority stake sales and the rest through strategic sales. Recently, the Finance Minister said that ‘short-term market movements’ will not affect disinvestment prospects. But this is a somewhat optimistic view.

For starters, with corporate India churning out a string of disappointing numbers and global volatility making a comeback, foreign investors seem to be biding their time on their India bets, while re-allocating some money to cheaper emerging markets. This has negative implications for market liquidity and is not good news for a government which is hoping to unleash a large supply of PSU paper over the next few months. Moreover, commodity stocks across the spectrum have fallen out of favour with global investors; yet the list of PSUs identified for minority stake sales this year continues to be dominated by commodity names. ONGC, Indian Oil, NMDC and Nalco, for instance, are expected to fetch nearly two-thirds of the disinvestment proceeds. But with these state-owned firms already losing over ₹40,000 crore in market capitalisation this year, the time for their sale is hardly opportune.

With choppy market conditions likely to persist, it appears best that the Centre abandon an incremental approach and explore bolder themes to reboot the disinvestment programme. One way forward could be to list profitable state behemoths such as Life Insurance Corporation and Hindustan Aeronautics through IPOs. Recent fund raising by private sector firms suggests that investors are still willing to pay a significant scarcity premium for sectors that are under-represented in the listed space (logistics, for instance). Also, the Centre needs to get a move on, on the privatisation of loss-making PSUs. Here, the behemoth BSNL and Air India represent prime candidates for privatisation. A comprehensive valuation exercise of their assets should be initiated without delay. True, the NDA’s strategic sales of Modern Foods and Hindustan Zinc in the Nineties were criticised for being one-sided, but the lessons from that exercise have surely been learnt and can be incorporated into a new round of strategic sales. Finally, a government that believes in reforms has little reason to hold on to equity stakes in private companies such as L&T, ITC and Axis Bank through the Special Undertaking of the Unit Trust of India. If sold expediently, these stakes, valued at over ₹50,000 crore, may buy the Centre enough time to work on a more reformist agenda on disinvestment.

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