PM Modi distances from privatisation plans-will revamp state-run firms
PM Modi distances from privatisation plans-will revamp state-run firms
Ahead of the presentation of the annual budget on July 23 by Union Finance Minister Nirmala Sitaraman, and as a part of it, PM Modi has distanced from
privatisation plans and will revamp state-run firms and he has chalked out new plans which will be unvield on July 23.
Reportedly, the new plans include selling large parcels of underutilised land owned by these companies and state-run firms and monetisation of other assets. He also said two officials are aware of the policy. Some aspects are yet to be fine-tuned.
Infact, the programme to privatise a major portion of India’s lumbering $600 billion state sector announced in 2021, had slowed afore the general election in April-May
Government sources revealed that India plans to overhaul more than 200 state-run firms to make them more profitable, signalling a distance by PM Modi’s aggressive privatisation programme that has struggled to take off.
It now faces more resistance after Modi lost his majority in parliament and had to rely on coalition allies to return to office.
The aim is to raise $24 billion in the current April-March fiscal year and re-invest the funds in the companies, while setting five-year performance and production targets for each company, instead of short-term targets.
Notedly, the plans to overhaul state firms have not been reported previously.
The officials declined to be identified as they were not authorised to speak on confidential deliberations.
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The finance ministry did not respond to requests for comment.
In an interim budget presented before the election, the government did not provide any figures on stake sales for the first time in more than a decade.
The officials also added that the government is shifting focus from indiscriminate asset sales to enhancing intrinsic value of state-owned companies,” said one of the officials.
Among other plans, the government intends to introduce succession planning in majority-owned companies alongside a proposal to train 230,000 managers across firms to prepare them for senior roles, the officials said.
As of now, the government appoints top executives in state-owned companies.
Plans are afoot by the government to implement a plan that includes training of managers, professional recruitment to company boards and incentives for high performance from the 2025/26 fiscal year, with the expectation that increased autonomy would make companies more competitive.
The 2021 announcement to sell most state-run companies included two banks, one insurance company and firms in steel, energy and pharmaceutical sectors besides closure of loss-making companies.
But India has been able to only complete the sale of debt-ridden Air India to the Tata Group, while rolling back plans to sell some others. Only a 3.5% stake in LIC has been sold besides shares in few other companies.
As per Hardeep Puri, India’s oil minister, last week a plan to sell state-owned Bharat Petroleum Corp was no longer on the table as the company was making almost as much profit in a year as the price it was to be sold for.
Sunil Sinha, chief economist at India Ratings, the local arm of Fitch ratings agency, affirmed that the sale of government companies, marred by allegations of “selling family silver” at a cheaper price, would be difficult to push after Modi’s reduced majority in parliament.
“This (privatisation) can actually snowball into a political slugfest…recouping it may become very difficult and they may have to pay a political price for it.”
Notwithstanding hurdles in privatisation and stake sales, the overall market valuation of state-run firms has more than doubled in the past one year on hopes of reforms in the sector.
The BSE PSU index, which tracks state-owned companies, has surged over 100% in the last one year, outperforming the benchmark BSE Index’s 22% rise.
Sanjeev Prasad of Kotak Institutional Equities in a note said that they find the valuations of many PSU stocks to be quite bizarre, when compared with their fundamentals.
Adding that some of these companies will require extraordinary assumptions and a massive turnaround in their operations (and financials) to justify their current market caps.
But the government views the market’s response as a mark of investor confidence, said a senior official at the NMDC, India’s state-run iron ore company.
Looking ahead, the government expects its reforms would translate into higher profits and, subsequently, increased returns for the state, the official said.
State firms were expected to pay substantially higher dividends to the government, compared to earlier estimates of 480 billion rupees ($5.8 billion) in 2024/25, said the second government source.
Analysts however said India risked missing the opportunity to cash in on the booming valuations of state companies.
The government could raise about 11.5 trillion rupees ($137.75 billion) at current market capitalisation by selling minority stakes in state-owned companies, while maintaining 51% stake, CareEdge Ratings said in a note last week.
Meanwhile, Rajani Sinha, chief economist, CareEdge Ratings added that
the conclusion of the election season, combined with stock market hovering around all-time highs, provides a perfect opportunity to advance some significant divestment initiatives.
News Edit K.V.Raman
