Divestment: It’s time to put the more profitable PSUs on the block

By setting a fiscal deficit target of 3.5 per cent for 2016-17, the Finance Minister has pleased the market, no doubt. But much of the onus of achieving this feat has once again fallen on raising large sums by way of disinvestment in public sector entities. After grossly missing the ₹69,500 crore target by raising a modest ₹25,300 crore through disinvestment in 2015-16, the Centre has once again set the bar high for itself. In 2016-17, it proposes to raise ₹56,500 crore, double the amount it raised in the current fiscal.

While uncertain market conditions can play spoiler once again, it is important that the Centre reviews its portfolio of Central Public Sector Enterprises (CPSEs). Adopting some of the recommendations mentioned in the 14{+t}{+h} Finance Commission on disinvestment can help the Centre build a more sustainable source of generation of additional revenues.

Widening the base A look at the past trend of disinvestments shows that large sums have been raised from disinvestments in few PSUs, with the same names doing the rounds in most years. For instance, among the big money spinners, Coal India, IOC, NHPC, NMDC, NTPC, PFC, Oil India, PGCIL and REC have figured in the list at least twice since 2009-10. There are 50 CPSEs listed on stock exchanges.

The Centre also has 169 unlisted ones under its kitty, of which 142 are profitable entities. Since 1991-92, the Centre has divested stakes in about one-fourth of number of companies in its portfolio.

While it may not be possible to divest stakes in all entities as some may require the government’s dominant control, ranking entities by priority can help zero-in on possible candidates. The 14{+t}{+h} Finance Commission states that in high priority or priority entities disinvestment should not be more than 25 per cent. In low priority, up to 74 per cent stake sale, while in non-priority enterprises, divesting 100 per cent stake could be considered. The commission has identified 88 CPSEs that can qualify as non-priority.

Low/non-priority Out of the top 25 CPSEs in terms of turnover (2012-13), the commission has categorised Bharat Heavy Electricals, SAIL, Chennai Petroleum, State Trading Corporation, Air India, Rashtriya Ispat Nigam and PEC as low or non priority entities. Others (not in the top 25 list) include MTNL, Hindustan Photo Films, Hindustan Cables, Bharat Petro Resources, Hindustan Fertilizer, and Fertilizers & Chemicals.

Aside from BHEL, SAIL, Hindustan Cables (smaller sums), no money has been raised by divesting stakes in any of the other entities in the last decade or so. The Centre has set a target of ₹20,500 crore by way of strategic sales in 2016-17. Considering that it has raised just about ₹6,300 crore through strategic sales from 2000-04, this appears a tall task unless the Centre is willing to put some of its profitable companies on the block.

The Budget talks of divesting individual assets like land and manufacturing units. The NITI Aayog is expected to identify potential candidates in a time-bound manner.