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Finally, the Indian government is getting rid of stressed state-run companies

Narendra Modi-PSU-Public sector-Disinvestment-Finance ministry-Business-Arun Jaitley-India-Economy
Reuters/Anindito Mukherjee
A crisis like never before.
By Manu Balachandran
Published Last updated This article is more than 2 years old.

After a hiatus of more than a decade, the Indian government has once again begun the process of selling off it’s public companies to private firms.

On Sept. 28, the Narendra Modi government approved the strategic disinvestment in the loss-making firm based in Allahabad which makes pumps for industrial use. “The Cabinet Committee on Economic Affairs (CCEA) accorded ‘in principle’ approval for strategic disinvestment of Bharat Pumps and Compressors,” a government press release said on Sept.28.

Strategic disinvestment or sale, according to the government of India (pdf), refers to the “sale of a substantial portion of the government shareholding” in a public sector enterprise of “upto 50%, or such higher percentage,” along with the “transfer of management control.”

India last undertook a strategic sale in 2003 when the then Bharatiya Janata Party (BJP) government headed by Atal Bihari Vajpayee sold its stake in Jessop and Co, India’s oldest engineering company. The government divested 72% stake in the company to Kolkata-based Indo-Wagon Engineering for Rs18.2 crore. The deal had come three years after the government sold its 74% stake in Modern Food Industries to Hindustan Lever for Rs105 crore in what was India’s first-ever strategic sale.

After 2003, the government did continue on this path fearing protest by trade unions and controversies over the valuations.

However, the Modi government intends to push forward again and wants to raise some Rs20,500 crore in the current financial year through this route. NITI Aayog, a government think tank that replaced the socialist-era planning commission, had been asked to identify suitable companies.

“NITI Aayog has already recommended about 44 companies for strategic sale and that is going through a process. Dip (department of investment and public asset management) is working on that, taking it forward,” NITI Aayog CEO Amitabh Kant said earlier this month. “But for us, it’s an ongoing process, so we are looking at the second lot, the third lot, and we will come out with recommendations.”

India’s finance ministry has also set a target of raising Rs56,500 crore through disinvestments this year, to help bring down the country’s fiscal deficit. Disinvestment in India is a practice wherein the government reduces or divests its stake in a public sector company to raise funds. Last year, the Modi government had set an ambitious target of raising Rs69,500 crore through disinvestment. But it could eventually only raise Rs18,400 crore.

Since coming to power in 2014, the Modi administration has pushed hard to fix government finances. Thus, it has decided to shut down 15 loss-making public sector firm like telecom cable-maker Hindustan Cables.

Nonetheless, now that the first strategic sale has been approved, it is only a matter of time before the government pushes through aggressive strategic disinvestment. Time for another era of privatisation.

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