The sell-off in big private sector companies like Air India, BPCL, SCI and others is clearly in line with Prime Minister Modi’s statement that ‘the government has no business to be in business’.
India’s great public sector sell-off gathered steam this week with the government receiving “multiple bids” for Shipping Corporation of India (SCI).
"Multiple Expressions of Interest have been received for privatisation of Shipping Corporation of India Limited. The transaction will now move to the second stage," said Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management.
The government had invited bids expressions of interest for the entire 63.75 per cent it holds in the company. The successful bidder will gain management control of SCI. The last date for submitting bids was extended to March 1 from February 13 earlier.
In November 2020, the Modi government had approved the decision to privatise SCI. The implementation of this decision, however, got delayed because of the Covid-19 pandemic.
Everything else will be sold to the private sector. Articulating this philosophy, Indian Prime Minister Narendra Modi told a recent webinar on privatisation that “the government has no business to be in business”.
“When a government engages in business, it leads to losses. The government is bound by rules and the lack of courage to take bold commercial decisions… It is government's duty to support enterprises and businesses. But it is not essential that it should own and run enterprises… Fiscal support to sick PSUs puts a burden on the economy and public sector units should not be run just because of legacy,” he said, in a clear enunciation of his government’s priorities.
In a clear break with past practice, the government has decided to actually sell public undertakings to private buyers with full transfer of management control. In recent years, the government has preferred, instead, to sell minority stakes in well run PSUs through IPOs, while retaining its grip over these companies.
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In her Budget for 2021-22, Sitharaman has accounted for more than $25 billion from the privatisation of companies such as Air India, BPCL, SCI, Container Corporation of India (Concor), etc., as well as the sale of minority stakes in some others.
“A number of transactions namely Bharat Petroleum Corp Ltd, Air India, Shipping Corp of India, Container Corp of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam, among others would be completed in 2021-22,” she said.
The government is expected to sell two public sector banks and also launch an IPO for India’s largest insurance company, Life Insurance Corporation (LIC) of India.
Several large companies including the Tata Group, Vedanta Group, Apollo Global and ISquared Capital, Spice Jet promoter Ajay Singh and many other Indian and foreign investors are believed to have submitted EoIs for the strategic sales of national carrier Air India, oil marketing company BPCL and air carrier Pawan Hans.
“The (privatisation) processes of Air India and BPCL are at a more advanced stage compared to other names, hence these will be the first off the blocks. We are targeting late-first quarter, early-second quarter to complete these deals,” a top government official said.
These transactions are expected to be completed by June-July this year, the official added.
However, it may not be as easy as that. Several trade unions and political parties have said they will oppose the privatisation of “India’s crown jewels”. So, analysts expect some pushback against the government’s decision to sell public assets.
But given the massive majority enjoyed by the government and its reputation for staying the course even on contested decisions, industry sources expect the privatisation of these companies to go through, albeit with a slight delay.