Privatisation policy – Explicit immunity to only handful of PSUs

Nuclear Power Corporation of India, Antrix Corporation and PowerGrid will be among a small handful of state-owned companies to continue to enjoy immunity from privatisation under the government’s new, explicit privatisation policy. Others, including the PSU biggies in the energy, engineering and capital equipment sectors, not to mention those in non-strategic sectors like hotel and tourism and trading, could go under the hammer as and when their turns come up.

Of course, Indian Railways, National Highways Authority of India and Food Corporation of India will remain under full government control, as these are monolithic entities supported by specific Central laws, and have functions inseparable from well-entrenched, flagship government policies.

According to official sources, the Centre’s much-awaited new policy to determine strategic/non-strategic sectors will likely see as many as 16 sectors being identified as ‘strategic’, virtually covering all conceivable sectors with supposed strategic nature. The government will continue to have at least one public sector company in these sectors. The policy, likely to be unveiled by the end of this month, could also see entry of private players into atomic energy and space sectors, while allowing the sole state-run entities in these sectors – Nuclear Power (atomic energy) and Antrix (space) – to retain their public sector character.

Along with a clutch of other firms, Bharat Heavy Electricals (BHEL) falls under the ‘heavy and medium engineering sector’, one of the 16 ‘strategic sectors’ identified by the government, where only one firm needs to retain the PSU tag. That implies the new policy doesn’t accord any outright exemption to Bhel from privatisation, but the company could still be preserved in the public sector, given its crucial role under the Make in India campaign and its potential as a domestic equipment manufacturer to rein in the cost of power to consumers.

The new policy, while not being dramatic in its redefinition of strategic and non-strategic sectors, still offers significant scope for large-scale privatisation and/or consolidation of central PSUs, including several large companies in sectors such as petroleum refining and marketing, crude exploration, power generation, coal and metals. Most of these sectors have more than one PSU, even more than four in some cases.

Currently, there is no clear definition of strategic sector. According to some regulatory purposes, only space and atomic energy are considered strategic while the railways is categorised as sector involving social good, and so eligible to be in the government sector only.

Under the new definition, non-strategic sectors will include ‘hotel and tourist services’, ‘transportation vehicle & equipment’, ‘industrial and consumer goods’, ‘trading and marketing’ and ‘transport and logistics’. The government will likely privatise all the entities in these sectors in due course of time. For example, ITDC, which has a network of four Ashok Group of Hotels, including The Ashok and Samrat Hotel in central Delhi, one joint venture hotel, one restaurant and 12 transport units across the country, is an apt candidate for sale. Similarly, in transport and logistics sector, there are about 20-odd companies. While the strategic sale process for Air India has already been initiated, its subsidiaries, ConCor, among others, are among the next in line. Of the 20-odd companies in trading and marketing, the bigger ones like STC and MMTC will likely be privatised or shut down while smaller and loss-making ones will be wound up.

According to the proposed privatisation policy announced by finance minister Nirmala Sitharamjan recently, at least one enterprise in a ‘strategic sector’ will remain in the public sector, but private sector will also be allowed. To minimise wasteful administrative costs, the number of enterprises in strategic sectors will ordinarily be only one to four, others will be privatised or merged or brought under holding companies.

While the Modi government has already initiated strategic disinvestment, the new policy will give a comprehensive framework and provide the ground for a road-map of privatisation for years to come. Disinvestment of government stakes in companies have become a major source of non-tax revenue in recent years with mop-ups of Rs 1 lakh crore in FY18, Rs 85,000 crore in FY19 and Rs 50,300 crore in FY20. While the target is to raise Rs 2.1 lakh crore in FY21 from disinvestment, market volatility may make the task difficult even though sale of oil retailer BPCL alone may fetch the Centre Rs 70,000-80,000 crore.

There will be significant scope of dinsinvestment in oil refinery and retailing, which has six CPSEs, including BPCL, Indian Oil, MRPL, Chennai Petroleum Corporation and Numaligarh Refinery. In the hydrocarbon exploration sector, there are five PSUs including ONGC, BPRL, Oil India and ONGC Videsh. Heavy and medium engineering sector has 33 CPSEs, including BHEL, HAL, Cochin Shipyard, Goa Shipyard, Bharat Electronics. While BHEL is likey to remain in public sector, some of the other units under this category are also under closure processes. Among eleven PSUs in power generation, including NTPC, NHPC and SJVN, a handful can either be privatised or be sold to stronger ones.

There were 249 operating Central PSUs as on March 31, 2019.