Modi's statement on PSUs show preference for revival rather than sale

PM said that the government had succeeded in turning around loss-making public-sector behemoths like Air India and BSNL

Prime Minister Narendra Modi's reference to loss-making public-sector behemoths now making profits could be an indication that this government has greater confidence in reviving loss-making public-sector enterprises (PSUs) rather than selling them.

"In our country, the PSUs are formed to fall in a pit, to fail, to get locked out or to be sold out. That has been the history," Modi said in his third Independence Day speech from the ramparts of Red Fort. "We have tried to bring in a new culture. And today, for the first time, I can say with satisfaction that Air India, which had a bad image, has succeeded in registering an operational profit last year. At a time when telecom companies all over the world were earning, BSNL was falling in a pit. For the first time, BSNL has succeeded in earning operational profit."

Prime Minister Narendra Modi, as part of his Independence Day speech on Monday, said that the government had succeeded in turning around loss-making public-sector behemoths like Air India and BSNL.

While, the statement in itself is just a small part of a larger speech listing out the government's major achievements over the last two years, it may be an indication that in spite of budgetary announcements, the Prime Minister likely has greater confidence in the process of reviving loss-making public-sector enterprises (PSUs) rather than selling them.

Finance Minister Arun Jaitley has budgeted a rather ambitious disinvestment target of Rs 56,500 crore for FY17. Out of which, Rs 36,000 crore is expected to come from the reduction in the Centre's stake in listed PSUs through stake sales and buybacks. As much as Rs 20,500 crore is expected to come from strategic sales. The rather long process of strategic sales involves NITI Aayog, Department of Investment and Public Asset Management (DIPAM), line ministries and the Cabinet.

On the minority stake sale front, things are going rather well. DIPAM has already issued RFPs or appointed merchant bankers for Cochin Shipyard, HUDCO, ITDC, NBCC, State Trading Corp, SUUTI, MMTC, National Fertilizers, NMDC, Oil India, Rashtriya Chemicals and others. Hence it has a lot of stake sales planned. Additionally, new PSU guidelines demand that every CPSE with a net worth of at least Rs 2,000 crore, and cash and bank balance of Rs 1,000 crore will buy back shares. Coal India, NMDC, Nalco, MOIL and Bharat Electronics have already cleared buybacks and other big PSUs are expected to follow suit.

On the strategic sale front though, there seems to be a lot of confusion, contrasting reports and lack of clarity, especially when it comes to NITI Aayog's role. The Aayog has been tasked with identifying with the PSUs for strategic sale, advising the government on mode of sale, and suggesting methods on valuation of the company.

There have been multiple reports of lists of PSUs which have been sent to the Prime Minister's office, only for the NITI Aayog to send rejoinders when a newspaper named a few of the companies.

A panel under the Aayog, on revival of sick PSUs, has reportedly suggested that any sale of such companies should not include their capital assets like land, machinery, facilities, warehouses, plants etc. But while land banks do seem to have been ruled out of any sale, several policymakers, including Jaitley, have stated that facilities, factories, plants, hotels and office spaces will be considered.

NITI Aayog's, and the government's, two-pronged approach towards revising or selling stake in PSUs comes from the top. While the Centre maintains that it will exit from sectors where the government 'has no business being in business', Modi prides himself for having revived sick PSUs when chief minister of Gujarat. He has pushed for reviving fertiliser plants in Gorakhpur, Barauni, Sindri, and Fertilisers and Chemicals, Travancore.

In an interview with the Wall Street Journal earlier this year, he'd said: "In any developing country, both the public and private sector have a very important role to play. You can't suddenly get rid of the public sector, nor should you."