Government's signals on PSU divestment

V.Narayan · 18th October 2021, 17:25

Government’s PSU Divestment Programme

After several failed attempts, the Union government, earlier this month, announced the sale of the national carrier Air India to Tata Sons. This marks the first major outright privatization of a public sector company in almost two decades. That there was little opposition to the sale from employees of the beleaguered PSU or, for that matter, from political parties, suggests an acceptance of the fact that the government could no longer throw good money after bad. Considering the long-standing struggle to sell the airline, the pragmatism shown by the government this time around in tweaking the modalities of the sale agreement to make it an attractive proposition, sends an unambiguous message — about its determination to push forward with a privatization agenda.

With the conclusion of this sale, the government will no longer need to constantly infuse cash in the loss-making enterprise. It has pumped in around Rs 1.1 lakh crore {~US$ 15 billion} since 2009-10 to prop up the airline. In 2019-20 alone, the airline’s operational losses were to the tune of Rs 8,743 crores {US$ 1.15 billion}. This now frees up scarce resources, money better spent on providing public services like health, education, public transport, water etc.

On its part, the government has also displayed flexibility in pushing the sale by retaining part of the debt, as previous attempts to sell failed to elicit interest with private players reluctant to step forward to take on the mountain of debt the airline was drowning under. Compared to the last two bid attempts in 2015 and 2018 the Government this time – (a) got off its high horse; (b) accepted that the most of the debt needed to be hived off for subsequent re-structuring; (c) kept the real estate out of the deal knowing that those assets can be sold off at a greater value in well packaged pieces; and (d) limited the need for honouring current employment for 12 months only.

All this indicates political good sense and seriousness of the Government towards PSU divestment as a whole. The Air India deal is a blue print for what could follow with rapidness. The signaling is way beyond this one deal. It signals the final death throes {I sincerely hope} of the erstwhile philosophy that only the public sector can build the nation, private investment is bad, profit making is a sin etc – philosophies which sadly even today permeate the thinking of many of us.

A sign of the Government’s seriousness is indicated by the fact that the finance ministry will soon move the Cabinet to seek approval for setting up a special purpose company for transfer and subsequent monetization of land and non-core assets of privatization-bound Central Govt PSUs.

This special purpose vehicle (SPV) would hold these non-core assets which would be monetized to fetch value to the exchequer. This will allow private players to buy these assets without the burden of often over-priced surplus real estate and at the same time create for the Govt a central pool of assets to hive off whenever the real estate market in that region is looking up.

The government is targeting to conclude strategic sale of:

BPCL, Shipping Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd, this fiscal it is believed. I have been hearing murmurs of PSU divestment since at least 1991 but very little has actually happened. For the first time in my working life of 4 decades do I really believe that these divestments will happen and hopefully happen in good time and put cash into the hands of the Govt. Cash needed for health, education, water, building a robust judiciary and tightening our borders amongst others.

https://economictimes.indiatimes.com...campaign=cppst
https://indianexpress.com/article/op...-india-756441/

Aditya · 19th October 2021, 05:30

Thread moved out from the Assembly Line. Thanks for sharing!

aargee · 19th October 2021, 06:21

Quote:

Originally Posted by V.Narayan

The Air India deal is a blue print for what could follow with rapidness. The signaling is way beyond this one deal. It signals the final death throes {I sincerely hope} of the erstwhile philosophy that only the public sector can build the nation, private investment is bad, profit making is a sin etc – philosophies which sadly even today permeate the thinking of many of us

While we were all yearning for this to happen, US pioneers in encouraging private sector companies faces massive corruption in the private sector more than the govt themselves for human greed has no boundaries. Even the regulations have been tweaked to unimaginable extent that looks true legitimate on the outside while the foundations are built out of pure corruption. Hopefully we will get to see a strong regulatory body to keep the private players under check.

I for one have been longing to see abolishing reservation & establish a true merit based system, not for govt jobs, but for true merit based education - reservation for the deserved!!

DigitalOne · 19th October 2021, 08:34

Quote:

Originally Posted by V.Narayan

BPCL, Shipping Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd, this fiscal it is believed. I have been hearing murmurs of PSU divestment since at least 1991 but very little has actually happened. For the first time in my working life of 4 decades do I really believe that these divestments will happen and hopefully happen in good time and put cash into the hands of the Govt. Cash needed for health, education, water, building a robust judiciary and tightening our borders amongst others.

Very well written

. You have rightly emphasized that the Air-India privatization is not just one company changing hands but a significant moment in our economic future, a moment of changing direction.

Some disinvestment/privatization did happen during NDA-1, when Arun Shourie was even designated as a 'disinvestment minister'. PSUs like VSNL, BALCO, IPCL were privatized during this period.

ps - waiting for the first post that mentions 'family silver'

.

mvadg · 19th October 2021, 08:42

Quote:

Originally Posted by V.Narayan

...

It signals the final death throes {I sincerely hope} of the erstwhile philosophy that only the public sector can build the nation, private investment is bad, profit making is a sin etc – philosophies which sadly even today permeate the thinking of many of us...

Quote:

Originally Posted by aargee

While we were all yearning for this to happen, US pioneers in encouraging private sector companies faces massive corruption in the private sector more than the govt themselves for human greed has no boundaries...

Sorry, I don't believe that private sector is any less corrupt than government run entities. This is basic human nature.
The worst part about private entities is that they are somehow protected from complete scrutiny even though they operate and interface with the public. Their operations affect every human (and the planet) just like the government entities.

A BPCL CEO put it perfectly - private enterprises are motivated only by greed. Private entities cheat the consumers, their suppliers and the government and in turn their employees cheat customers, and their own management, if they can get away with it. And of course, management cheats their employees.

We can see corruption among the employees of private sector in many organizations - example - DTH technicians who come and replace perfectly functional equipment after changing some configuration settings at their end to make it look like the equipment is malfunctioning.

Hopefully, in future, organizations will be rewarded for running their operations ethically without favoring certain vested interests. It is not the profit loss statement we should be looking at, but a different metric that tells us if society has benefited as a whole because of the operation of an organization.

androdev · 19th October 2021, 08:52

Similar urgency and tweaking will be shown to sell healthy PSUs to A&A at a good discount :-)

Jokes apart, this PSU vs Privatization is a complex issue. We don't want Amazons of the world as much as Air Indias. How to find the balance that offers social justice and sustainability is a problem that nobody is attempting to solve. If the govt tightens regulations to be employee friendly, they replace employees with bots. If the govt enforcers stricter environmental regulations, they move to underdeveloped countries, etc. We created a situation of enterprise vs society with society at large poised to lose.

Maybe some hybrid model can be evolved to prevent the inefficiency and corruption of PSU and complete lack of social justice in private enterprises.

aargee · 19th October 2021, 09:15

Quote:

Originally Posted by mvadg

Sorry, I don't believe that private sector is any less corrupt than government run entities...And of course, management cheats their employees

It's a catch 22 situation, can't do much about it. If one is hot oven, other is a fireplace!!

Quote:

Originally Posted by mvadg

Hopefully, in future, organizations will be rewarded for running their operations ethically without favoring certain vested interests.

The future is here in form of Infosys, Starbucks, Wipro, 3M, Lego

Edit - Guess what comes up when we're talking about corrupt practices of private companies?

https://www.youtube.com/watch?v=FUXGB5FzhPc

KPR · 19th October 2021, 09:42

As rightly put in the OP PSUs were made for building the nation by installing Steel plants, refineries, power generation units etc., where private investment is difficult. One more important motive behind PSUs were the job opportunities that they have created for Indians. But in 2021 when private companies can singlehandedly invest thousands of crores in every possible field where 250+ PSUs are operating, then survival of PSU with its working methodology has become a threat. Many employment will be lost. It will become survival of the fittest under private. Let's wait and see the new India industry.

saikarthik · 19th October 2021, 11:03

Quote:

Originally Posted by V.Narayan

Government’s PSU Divestment Programme

After several failed attempts, the Union government, earlier this month, announced the sale of the national carrier Air India to Tata Sons. This marks the first major outright privatization of a public sector company in almost two decades.

Your thoughts were like an echo from Mr. Shekhar Gupta's video on this 5 days ago. A good video on why he again and again says government should focus on it's job of improving conditions for better life than running businesses.

https://youtu.be/tDvffm7H__8

IamNikhil · 19th October 2021, 13:34

BPCL privatisation is encountering hurdles due to the skyhigh fuel prices at the moment. Quoting a report from India Today below:

Quote:

The divestment of Bharat Petroleum Corp*oration (BPCL) may hit a fuel price hurdle, according to officials dealing with the matter. They pointed out that the inconspicuous administered price regime could hamper the prospects for potential buyers of BPCL. A senior oil ministry official said public-sector oil-marketing companies (OMCs) take a hit when they sell petrol, diesel, and liquefied petr*oleum gas (LPG), three of the most popular petroleum products in the country. “The oil firms can recover this hit later when crude oil prices mellow down,” the official said.

While petrol and diesel prices have officially been deregulated, the Centre continues to nudge the OMCs and keep them under check. It is being said that the probable new owner of BPCL may not want to adhere to these unofficial price regulations. But the Union government wants to officially continue regulating LPG prices in the country and the new promoter of BPCL would be mandated to adhere to such regulation. Oil ministry officials aware of the developments told Business Standard they intended to keep BharatGas LPG prices under check.
“Whosoever purchases BPCL will have to adhere to the prices fixed by the Centre for domestic users eligible for subsidy. BharatGas has a large chunk of the domestic market and consumers are price-sensitive,” an oil ministry official said.

"Subsidy for existing BharatGas consumers will continue and the new owner will have to maintain the effective price to beneficiaries. So, if Indane (IndianOil’s LPG division) and HP Gas (HPCL’s LPG division) are selling a domestic cylinder for, say, Rs 900 (effective price after subsidy) in a city, BharatGas consumers will continue to get it at Rs 900 for the same category of beneficiaries even after BPCL’s privatisation,” the official added.

AZT · 19th October 2021, 13:39

I'm a fan of privatization but not if all of it goes to Adani / Tata / Ambani. This then starts looking like the Russian Oligarchs under Putin.

anb · 19th October 2021, 14:48

BPCL is running with massive profits. Why would someone sell a company running with massive profit? How much is the expected selling price of BPCL and what is the total value of assets?

https://www.businesstoday.in/latest/...007-2021-05-26

Electromotive · 19th October 2021, 18:54

Good post. While I am all for increased privatization, I am not completely onboard with outright selling off of PSUs.

PSUs provide a lot of essential services to the disenfranchised. Without PSUs a lot of poor people would be further cut off from govt. services since this segment is not profitable for the private sector.

The issue with PSUs is not the companies themselves but how they are run. The need of the moment is not selling off of PSUs but a complete overhaul of the management of these PSUs. Much better performance incentives and harsh penalties, weeding out of non performing employees, strict performance and balance sheet monitoring, zero bureaucratic interference in day-to-day business, a strategy to create a culture for innovation, greater customer focus, and more powers for recovery of dues.

Quote:

Originally Posted by aargee

I for one have been longing to see abolishing reservation & establish a true merit based system, not for govt jobs, but for true merit based education - reservation for the deserved!!

That's not going to happen any time soon, if ever. We have dug ourselves so deep that the political and govt. system will collapse if the reservation system is abolished. Mediocrity and incompetence will continue to be the norm. A full scale war and economic collapse is now needed to get rid of the reservation system.

With the rise of automation, the only exports that India has will shrink further, leading to more unemployment and greater demand for govt. jobs and reservation. At one point the private sector will collapse because the burden to support the govt. job freeloaders will prove to be too much. This will lead to economic collapse, hyperinflation and end of the republic due to balkanization.

sgmuser · 21st October 2021, 09:01

Show me a proof that except Tata and one or two others how many Indian companies are ethically value driven? Divestment is a no-no for me even if the PSUs have been making losses. I am a conservative. I rather make it profitable by putting some effort. Bring in right people like Chandra doing for Tata. If BHEL, IOC, ONGC can make profit, if Tata can revitalise itself with good management, then do the same with those companies. Keep good chunk of core entities still with the Govt's purview (fully owned or public), build good models of governance, ensure some stability to the over all economic-social environment and at the same time divest only if it will, in the long term benefit the industry, people of the country. People are the priority. Do not try to copy model from other countries. India is unique. Respect that. Service oriented entities need to be revitalised and need to be opened to the market. Ex. SBI like Scheduled Banks, the service quality is rotten to the core. Have a look at the banks like DBS in Singapore which is a government owned. They give a run to HSBC for their money.

Selling big big assets of this great country to Adani's and Reliance is a cause for concern in the long term and full of conspiracy. While shortlisting, there should be a class to rate the ethics and CSR performance of the buyer and they need to be scored accordingly not just monetary terms.

lancia_fanboy · 21st October 2021, 09:17

I think that profitable or not, government has no business, being in business. A strong toothy regulator with simple but effective laws can do more good, than 1000s of specific purposes PSU.

For example, in case of BPCL, BPCL earns massive profits because they have monopolised the Market, not because they are a very efficient company.
And in the era of efficient use of resources, makes no sense for government to keep on running BPCL. (When it already has IOC and HP)
Infact let there be more privatisation so that companies expand and more people start paying taxes, because this is a far more sustainable source of income.

For example take HZL(Hindustan Zinc Limited), sold as a loss making entity in 2003, now it's world's second largest zinc producer.

I think it's about time Keynes economy comes to India in full force

18th October 2021, 17:25	#1
V.Narayan Distinguished - BHPian Join Date: Aug 2014 Location: Delhi-NCR Posts: 4,071 Thanked: 64,317 Times	Government's signals on PSU divestment Government’s PSU Divestment Programme After several failed attempts, the Union government, earlier this month, announced the sale of the national carrier Air India to Tata Sons. This marks the first major outright privatization of a public sector company in almost two decades. That there was little opposition to the sale from employees of the beleaguered PSU or, for that matter, from political parties, suggests an acceptance of the fact that the government could no longer throw good money after bad. Considering the long-standing struggle to sell the airline, the pragmatism shown by the government this time around in tweaking the modalities of the sale agreement to make it an attractive proposition, sends an unambiguous message — about its determination to push forward with a privatization agenda. With the conclusion of this sale, the government will no longer need to constantly infuse cash in the loss-making enterprise. It has pumped in around Rs 1.1 lakh crore {~US$ 15 billion} since 2009-10 to prop up the airline. In 2019-20 alone, the airline’s operational losses were to the tune of Rs 8,743 crores {US$ 1.15 billion}. This now frees up scarce resources, money better spent on providing public services like health, education, public transport, water etc. On its part, the government has also displayed flexibility in pushing the sale by retaining part of the debt, as previous attempts to sell failed to elicit interest with private players reluctant to step forward to take on the mountain of debt the airline was drowning under. Compared to the last two bid attempts in 2015 and 2018 the Government this time – (a) got off its high horse; (b) accepted that the most of the debt needed to be hived off for subsequent re-structuring; (c) kept the real estate out of the deal knowing that those assets can be sold off at a greater value in well packaged pieces; and (d) limited the need for honouring current employment for 12 months only. All this indicates political good sense and seriousness of the Government towards PSU divestment as a whole. The Air India deal is a blue print for what could follow with rapidness. The signaling is way beyond this one deal. It signals the final death throes {I sincerely hope} of the erstwhile philosophy that only the public sector can build the nation, private investment is bad, profit making is a sin etc – philosophies which sadly even today permeate the thinking of many of us. A sign of the Government’s seriousness is indicated by the fact that the finance ministry will soon move the Cabinet to seek approval for setting up a special purpose company for transfer and subsequent monetization of land and non-core assets of privatization-bound Central Govt PSUs. This special purpose vehicle (SPV) would hold these non-core assets which would be monetized to fetch value to the exchequer. This will allow private players to buy these assets without the burden of often over-priced surplus real estate and at the same time create for the Govt a central pool of assets to hive off whenever the real estate market in that region is looking up. The government is targeting to conclude strategic sale of: BPCL, Shipping Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd, this fiscal it is believed. I have been hearing murmurs of PSU divestment since at least 1991 but very little has actually happened. For the first time in my working life of 4 decades do I really believe that these divestments will happen and hopefully happen in good time and put cash into the hands of the Govt. Cash needed for health, education, water, building a robust judiciary and tightening our borders amongst others. https://economictimes.indiatimes.com...campaign=cppst https://indianexpress.com/article/op...-india-756441/ Last edited by V.Narayan : 18th October 2021 at 17:33.
	(54) Thanks

19th October 2021, 05:30	#2
Aditya Team-BHP Support Join Date: Feb 2004 Location: Mumbai Posts: 17,845 Thanked: 77,082 Times View My Garage	re: Government's signals on PSU divestment Thread moved out from the Assembly Line. Thanks for sharing!
	(2) Thanks

19th October 2021, 08:52	#6
androdev Distinguished - BHPian Join Date: May 2007 Location: bangalore Posts: 3,097 Thanked: 22,345 Times	Re: Government's signals on PSU divestment Similar urgency and tweaking will be shown to sell healthy PSUs to A&A at a good discount :-) Jokes apart, this PSU vs Privatization is a complex issue. We don't want Amazons of the world as much as Air Indias. How to find the balance that offers social justice and sustainability is a problem that nobody is attempting to solve. If the govt tightens regulations to be employee friendly, they replace employees with bots. If the govt enforcers stricter environmental regulations, they move to underdeveloped countries, etc. We created a situation of enterprise vs society with society at large poised to lose. Maybe some hybrid model can be evolved to prevent the inefficiency and corruption of PSU and complete lack of social justice in private enterprises.
	(13) Thanks

19th October 2021, 09:42	#8
KPR BANNED Join Date: Oct 2019 Location: Dholakpur Posts: 828 Thanked: 2,529 Times	Re: Government's signals on PSU divestment As rightly put in the OP PSUs were made for building the nation by installing Steel plants, refineries, power generation units etc., where private investment is difficult. One more important motive behind PSUs were the job opportunities that they have created for Indians. But in 2021 when private companies can singlehandedly invest thousands of crores in every possible field where 250+ PSUs are operating, then survival of PSU with its working methodology has become a threat. Many employment will be lost. It will become survival of the fittest under private. Let's wait and see the new India industry.
	(3) Thanks

19th October 2021, 13:39	#11
AZT BHPian Join Date: Nov 2019 Location: Toronto Posts: 680 Thanked: 2,577 Times	Re: Government's signals on PSU divestment I'm a fan of privatization but not if all of it goes to Adani / Tata / Ambani. This then starts looking like the Russian Oligarchs under Putin.
	(19) Thanks

19th October 2021, 14:48	#12
anb BHPian Join Date: Nov 2005 Location: Idukki Posts: 816 Thanked: 3,173 Times View My Garage	Re: Government's signals on PSU divestment BPCL is running with massive profits. Why would someone sell a company running with massive profit? How much is the expected selling price of BPCL and what is the total value of assets? https://www.businesstoday.in/latest/...007-2021-05-26
	(3) Thanks

21st October 2021, 09:01	#14
sgmuser BHPian Join Date: Sep 2006 Location: Chennai Posts: 755 Thanked: 1,124 Times View My Garage	Re: Government's signals on PSU divestment Show me a proof that except Tata and one or two others how many Indian companies are ethically value driven? Divestment is a no-no for me even if the PSUs have been making losses. I am a conservative. I rather make it profitable by putting some effort. Bring in right people like Chandra doing for Tata. If BHEL, IOC, ONGC can make profit, if Tata can revitalise itself with good management, then do the same with those companies. Keep good chunk of core entities still with the Govt's purview (fully owned or public), build good models of governance, ensure some stability to the over all economic-social environment and at the same time divest only if it will, in the long term benefit the industry, people of the country. People are the priority. Do not try to copy model from other countries. India is unique. Respect that. Service oriented entities need to be revitalised and need to be opened to the market. Ex. SBI like Scheduled Banks, the service quality is rotten to the core. Have a look at the banks like DBS in Singapore which is a government owned. They give a run to HSBC for their money. Selling big big assets of this great country to Adani's and Reliance is a cause for concern in the long term and full of conspiracy. While shortlisting, there should be a class to rate the ethics and CSR performance of the buyer and they need to be scored accordingly not just monetary terms.
	(9) Thanks

21st October 2021, 09:17	#15
lancia_fanboy BHPian Join Date: Jul 2019 Location: NCR Posts: 50 Thanked: 207 Times	Re: Government's signals on PSU divestment I think that profitable or not, government has no business, being in business. A strong toothy regulator with simple but effective laws can do more good, than 1000s of specific purposes PSU. For example, in case of BPCL, BPCL earns massive profits because they have monopolised the Market, not because they are a very efficient company. And in the era of efficient use of resources, makes no sense for government to keep on running BPCL. (When it already has IOC and HP) Infact let there be more privatisation so that companies expand and more people start paying taxes, because this is a far more sustainable source of income. For example take HZL(Hindustan Zinc Limited), sold as a loss making entity in 2003, now it's world's second largest zinc producer. I think it's about time Keynes economy comes to India in full force
	(7) Thanks