Last week, the Boards of Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Limited (BPCL) passed resolutions to raise equity of Rs 22,000 crore and Rs 18,000 crore respectively by the issue of rights. The government will, not only subscribe to its share of rights but also take up all the shares not subscribed to by others.
The government sold its entire equity in the third Oil Marketing Company (OMC) HPCL to ONGC in 2018. As the government has no rights entitlement in HPCL, the company is exploring a proposal to make a special preferential allotment of its equity to the government.
The government had announced, in the Budget of 2023-24, to make Rs 30,000 crore equity infusion into the OMCs. When these three transactions get consummated, the government would have completed the largest equity infusion in the Central Public Sector Enterprises (CPSEs) in many decades.
The Modi government had undertaken a big disinvestment programme in its first term (2014-2019). It was also pursuing an ambitious privatisation programme, with its most comprehensive CPSEs privatisation and closure policy announced on 1 February 2021 in the 2021-22 Budget.
The privatisation programme which included BPCL sell-off, has been shelved with not a single transaction, other than Air India, taking place in its entire second term. The disinvestment programme has also floundered and is now dying with investment in CPSEs becoming many fold than disinvestment.
Has the Modi Government lost the appetite for privatisation and disinvestment? Or, is making equity infusion and junking disinvestment & privatisation, the new CPSE policy of the government?
Not in a 'Crazy Rush' To Sell Everything Sounded the Death-Knell of Privatisation
Finance Minister Nirmala Sitharaman speaking at the Raisina Dialogue on 5 March 2023, rhetorically said that the “government was not in a crazy rush to sell everything."
The same Nirmala Sitharaman was over the top announcing the CPSEs privatisation and closure policy on 1 February 2021, while delivering her budget speech 2021-22 devoting as many as eight paras (84 to 91) to asset monetisation, disinvestment, and privatisation.
Heralding the privatisation as the big policy pivot of the government, Nirmala Sitharaman had declared eloquently: “Other than IDBI Bank, we propose to take up the privatisation of two Public Sector Banks and one General Insurance company in the year 2021-22." To make sure that she was heard loud and clear, she had committed to introduce the amendments in the Bank Nationalisation laws in "this Session itself”.
Laying out the government’s other big-ticket privatisation agenda, she, in para 84, had committed: “A number of transactions namely BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Limited among others would be completed in 2021-22."
More than two years down the line, the privatisation report card is quite bleak. Except for Air India and Neelachal Ispat (which was not a CPSE), none of the remaining transactions- two banks, one insurance company, BPCL, SCI, CONCOR, IDBI Bank, BEML, and Pawan Hans- have made any progress.
The privatisation of BPCL, CONCOR, and Pawan Hans has been dropped. The land and other non-core assets of SCI and BEML have been demerged into separate companies but there is no movement in inviting the financial bids for them. IDBI Bank is moving at a snail's pace. The privatisation of two banks and one general insurance company has also been put on the back burner.
Anyone can conclude, without any hesitation, that no more CPSEs or banks, or insurance companies would be sold before the 2024 elections. Privatisation programme is effectively dead.
Disinvestment Programme Has Floundered in the Second Term
The Modi government ran an exceedingly successful disinvestment programme in the first term despite a somewhat slower start in the first term despite a somewhat slower start in the first two years. As against the total BE provision of Rs 3,41,925 crore in five years (2014-15 to 2018-19), the government could realise Rs 3,17,267 crore from the disinvestment programme, a hugely respectable 92.8% of the target. In 2017-18 and 2018-19, the last two years, the government could achieve 138% and 118% of already hefty budget targets.
First term disinvestment performance.
Photo: The Quint
The disinvestment performance has, however, been a miserable failure in the second term. In the first four years (2019-20 to 2022-23), the government could only garner Rs 1,37,171 crore from disinvestment receipts, against the budget target of Rs 5,55,000 crore, recording a dismal 25% achievement.
Second term disinvestment performance.
(Photo: The Quint)
It is a very clear evidence of non-performance. The government could collect only Rs1,37,171 crore from disinvestment receipts in four years; not even half of Rs 3,17,267 crore received in the first term.
Investment in CPSEs Is Going Up
In a bizarre twist of policy, the government’s investment in CPSEs has been shooting up in the second term.
The government invested Rs 18,310 crore in CPSEs like GAIL, Indian Telephone Industries, High-Speed Rail Corporation etc in 2019-20. Actual investment, including non-CPSEs like Railways, NHAI, etc is much higher. In 2020-21, the CPSEs investment was slightly lower at Rs 17,438 crore.
The investment in CPSEs started increasing notably from the year 2021-22 when it was Rs 30,853 crore. In 2022-23, the government decided to make massive investments in loss-making CPSEs like BSNL. As per 2022-23RE, CPSEs investment ballooned to Rs 65,274 crore.
All restraints have been junked in 2023-24. The investment in CPSEs is pegged at an all-time high of Rs 116,982 crore in 2023-24BE with the government deciding to invest Rs 30,000 crore in OMCs.
The year-wise investment in the CPSEs in the second term is presented in Table 3.
Year-wise investment in CPSEs
(Photo: The Quint)
In CPSEs, Government Trusts
The CPSE policy has taken a complete U-Turn. Privatisation is dead. Disinvestment has shriveled to a trickle. In its place, the investment in CPSEs is ballooning.
In 2022-23, the government made investment (Rs 65,274 crore) in CPSEs which was double of the disinvestment (Rs 35,343 crore). The way things are going in 2023-24, the government is unlikely to get more than Rs 30,000 crore from disinvestment. This year’s budgeted investment (Rs 1,16,982 crore) will be four times the disinvestment receipts.
Jawahar Lal Nehru and Indira Gandhi, the bete noire of the present government, were the architects of CPSEs in India. They must be chuckling, with a twinkle in their eyes, seeing the Modi government sinking loads of scarce fiscal resources in the inefficient and loss-making CPSEs they established; instead of disinvesting and privatising the same in pursuance of its clearly articulated policy.
(The author is the former Finance and Economic Affairs Secretary, Government of India. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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