Background

• Finance Minister Nirmala Sitharaman, in her Budget speech for 2021-22, announced a new policy for central public sector enterprises (CPSEs), which she said will serve as a clear roadmap for disinvestment of government-owned firms across sectors. 
• The Minister said that the government has kept four areas that are strategic where bare minimum CPSEs will be maintained and rest privatised. In the remaining sectors, all CPSEs will be privatised.

What goes outside government control?

• The government had revealed the broad contours of the policy in May 2020 as part of the Atmanirbhar Bharat package unveiled in the initial stages of the COVID-19 pandemic. 
• The strategic sectors identified at the time for retaining certain public sector entities within the government’s control remain the same in the final policy approved by the Cabinet. 
• These are atomic energy, space and defence, transport and telecommunications, power, petroleum, coal and other minerals, and lastly, banking, insurance and financial services. 
• While the initial plan was to retain one to four public sector firms in these sectors, this has now been replaced by the phrase “bare minimum presence”.
• Once the government decides what is the bare minimum number of firms it wants to retain, the rest of the firms will be privatised, merged or subsidiarised with other CPSEs, or closed. 
• For all firms in sectors considered non-strategic, privatisation or closure are the only two options being considered. 

Objectives

• The policy’s objective is to minimise the public sector’s role and create new investment space for the private sector, in the hope that the infusion of private capital, technology and management practices will contribute to growth and new jobs. 
• The proceeds from the sale of these firms would finance various government-run social sector and developmental programmes.

Why is this significant?

• The new policy is significant as it goes beyond the piecemeal approach to privatisation which exists till now and lays down a rationale for deciding the future ownership pattern of 439 CPSEs, including their subsidiaries. 
• For instance, it is now clear that 151 public sector firms in non-strategic sectors (including 83 holding companies and 68 subsidiaries) will either be closed or sold. 
• The policy also brings public sector banks and insurance entities into the disinvestment ambit for the first time.

How is this different from policies in the past?

• This is the first time since 2004 that India is working on a slew of privatisation deals. 
• Earlier, the Atal Bihari Vajpayee government between 1999 and 2004 had managed to sell off majority stakes in a dozen-odd public sector enterprises, including Modern Foods, Balco, Hindustan Zinc, VSNL and a few hotels. 
• The new policy goes beyond the Vajpayee-era privatisation drive, which was limited to a ‘case-by-case’ sale of entities in non-strategic sectors, by stressing that even strategic sectors will have a ‘bare minimum’ presence of government-owned firms.

What is likely to be sold?

• The government hopes to conclude the sale of Air India, BPCL and some other entities, where some progress has already been made over the past year. 
• Ms. Sitharaman also promised the sale of two more public sector banks and a general insurance player in her Budget speech, along with plans to list the Life Insurance Corporation (LIC) of India on the stock markets.
• The Union Budget has estimated ₹1.75 lakh crore as receipts from PSU stake sales in the year, compared to its target of ₹2.10 lakh crore for 2020-21, of which just about ₹20,000 crore has been raised so far. However, the Finance Ministry mandarins are confident of achieving next year’s target.

What is the proposed process for selecting the CPSEs to be sold or retained?

• The NITI Aayog has been entrusted with suggesting which public sector firms in strategic sectors should be retained, considered for privatisation or merger or ‘subsidiarisation’ with another public sector firm, or simply closed. 
• A core group of secretaries on disinvestment will consider the NITI Aayog’s suggestions and forward its views to a ministerial group. 
• Apart from the Finance Minister, the group will include Road Transport and Highways Minister Nitin Gadkari and the minister in charge of the administrative ministry of the public sector enterprise concerned. 
• After the ministerial group’s nod, the Department of Investment and Public Asset Management in the Finance Ministry will move a proposal to the Cabinet Committee on Economic Affairs for an ‘in-principle’ nod to sell specific CPSEs. 
• The NITI Aayog is expected to soon formalise its recommendations on which of the 77 public sector companies in strategic sectors should remain with the government.

Which sectors will be retained?

• Public sector firms and corporations engaged in activities allied to the farm sector, such as providing seeds to farmers, or the procurement and distribution of food for public distribution, will not be privatised. 
• Similarly, the policy excludes departments with commercial operations like Railways and Posts, firms making appliances for the physically challenged, and those providing support to vulnerable groups through financing of SCs, STs, minorities and backward classes. 
• Central Public Sector Enterprises (CPSEs) “maintaining critical data having a bearing on national security”, security printing and minting companies, will also be retained in the public sector.

What are the risk factors?

• The turmoil in the global economy could impact the valuations of firms being privatised, as many potential investors may not have the appetite for bidding in these times. 
• The prospect of post-deal scrutiny by audit and investigating agencies, like the CAG (Comptroller and Auditor General of India) and the CBI, will be a source of worry for officials, with similar cases pertaining to the Vajpayee-era transactions still cropping up in courts.
• Lastly, as economist Pronab Sen has warned, privatisation is a good idea, but doing it during a recession may dampen economic recovery as investors will end up buying existing capacities instead of embarking on fresh investments.

Reference:

1. https://www.thehindu.com/business/Economy/the-hindu-explains-how-will-the-new-disinvestment-policy-oversee-future-of-public-sector-enterprises/article33891596.ece