Jaitley and Sitharaman: A look at divestment under the two NDA FMs

On May 29, Finance Minister Nirmala Sitharaman, at a press conference in Mumbai, said that the privatisation of public sector banks (PSBs) will go ahead as planned. This came as somewhat of a surprise to policy watchers as the plans for privatising two PSBs and one general insurer were announced two years ago. A top official told Business Standard that any PSB privatisation is unlikely to happen before the 2024 Lok Sabha elections.

Prime Minister Narendra Modi has been a proponent of divestment, and National Democratic Alliance (NDA) administrations have had a better track record than United Progressive Alliance (UPA) governments. In his early days, PM Modi had said that the government would get out of most sectors, a vision which was given credence through the new policy of ‘strategic sectors’ announced by Sitharaman in 2020.

After nine years of this administration, it would be instructive to compare the divestment and privatisation records of Modi’s two finance ministers -- the late Arun Jaitley and Nirmala Sitharaman.

Jaitley (2014-2019)

A hallmark of Jaitley’s tenure was that divestment targets were met in at least two of his five years (we are also including the period when he was unwell and Piyush Goyal stood in for him). But more interesting is how the targets were met. For example, as against a budgeted target of Rs 72,500 crore in 2017-18, the Centre garnered Rs 1 trillion. This was primarily due to Oil and Natural Gas Corporation (ONGC) buying a majority stake in Hindustan Petroleum, a deal which in itself got the exchequer nearly Rs 40,000 crore. The government dubbed such transactions as ‘strategic sales’ and they were simply a case of one state-owned entity buying another, and transferring the money to the sovereign. In no way can these be considered as privatisation.

There were more such strategic sales. In 2018-19, the Centre again exceeded its divestment target, primarily due to Power Finance Corp (PFC) buying the Centre’s 52.63 per cent stake in Rural Electrification Corp (REC) for Rs 14,500 crore. During Jaitley’s tenure, NBCC Ltd also acquired a full stake in HSCC Ltd and a 51 percent stake in HSCL Ltd

There were also notable initial public offerings (IPOs), as the macroeconomic and market conditions were much more benign than what Jaitley’s successor Sitharaman faced due to two years of the Covid-19 pandemic and the continuing war in Europe. The PSU IPOs in the first term of the Modi administration include Hindustan Aeronautics Ltd (HAL), Ircon International Ltd, Garden Reach Shipbuilders, RITES Ltd, and Cochin Shipyard, among others. As is clear by the names, most of the IPOs were of PSUs under the defence and railways ministries.

Something which only happened in Jaitley’s tenure was PSU exchange-traded funds. These initiatives were driven primarily by Neeraj Gupta and Atanu Chakraborty, who both served as secretaries of the Department of Investment and Public Asset Management (Dipam). There were two ETFs, Bharat-22 ETF and CPSE ETF, which both garnered the Centre healthy sums of money over multiple years. However, since the Centre’s own ETFs were underperforming other similar instruments, no further tranches have been issued in the government’s second term.

Sitharaman (2019-current)

As mentioned earlier, any recap of Sitharaman’s overseeing of divestment should come with the caveat of global uncertainties caused by the pandemic and Russia-Ukraine war, which led to an uncertain investment climate.

What is certain is that the landmark privatisation of this administration – Air India – was completed in her tenure. There was also the difficult IPO of LIC Ltd. There were some other IPOs whose planning began during Jaitley’s tenure but were completed in Sitharaman’s tenure, like IRFC Ltd and Mazagon Dock Shipbuilders Ltd.

Before the pandemic, in Sitharaman’s first year as finance minister, there were ambitious plans for the Centre to go all out on privatisation. There was another successful privatisation, that of Neelanchal Ispat Nigam Ltd, sold to Tata Steel Long Products. The companies in which the Centre planned to divest majority stake included Bharat Petroleum, Concor Ltd, Shipping Corporation Ltd, Pawan Hans, and Central Electronics Ltd, among others.

In fact, in 2019, most policymakers were of the view that while Air India privatisation would be difficult, PSUs like Bharat Petroleum would be sought after by global energy giants like Aramco, British Petroleum, Royal Dutch Shell, among others. There was hope, rather than confidence, that the Centre’s stake in BPCL could be sold for as much as a 30 per cent premium, which in 2019 could have gotten the exchequer upwards of Rs 70,000 crore.

In 2023, it is now clear that the BPCL privatisation bid has been all but scrapped. Pawan Hans got attractive bids and the government shortlisted a consortium as a winner, but later stopped the deal from happening as questions of impropriety and non-payment of dues were raised regarding a company, which was part of the consortium. This was for an unrelated bankruptcy and resolution matter.

The process of privatising Shipping Corp, BEML, CEL, and Concor is still ongoing but is unlikely to be completed in the current financial year. One sale, which is expected to be completed is that of IDBI Bank, though technically it won’t be considered privatization as it is LIC Ltd, and not the Centre, which holds the majority stake in the lender.