A look into the Indian Government’s PSU Privatization spree

  • Indian Government had been in talks for the sale of stakes in as many as 33 public sector enterprises.
  • Of the 33 PSUs. the government stakes in five companies i.e. Hindustan Petroleum Corporation, Rural Electrification Corporation, Dredging Corporation of India, HSCC (India) and National Projects Construction Corporation have already been sold Financial Year 2018 and 2019. However, these enterprises have been sold to other bigger PSUs.
  • Now, the government has approved the sale of its stake in BPCL LTD., Shipping Corporation of India, CONCOR, THDC India, and NEEPCO, all under different circumstances, to fulfill its disinvestment goal of around 1.05 Lakh Crores for the year 2019-20.

What is a PSU?

PSU stands for Public Sector Undertaking. Basically, it is a type of enterprise where a State or Central Government directly has a majority stake i.e. more than 51%. It can either be owned completely by the Government or it can be jointly owned by the Government and other parties such as Private Companies, Insurance Companies, Banks, Individuals or even a Foreign Company. Courtesy of ex-Prime Minister Mrs.Indira Gandhi’s Socialist policies, our economy opened up very late, thus hampering the growth for a very long term. Those ideologies are still affecting the Indian Economy but modern India is fighting that back.

Categories of PSUs in India

As of 31st March 2018, there were 339 Central Public Sector Enterprises (excluding insurance companies). Of these, 82 enterprises were yet to commence commercial operations.The government of India has categorized some PSUs into four special categories, giving them more financial and operational autonomy. It means that when a PSU grows financially, they are given a little bit more liberty with their finances and operations, which in turn means less political interference. Those categories are:

CategoryNumber of PSUs
Maharatna 10
Navratna 14
Miniratna Category-I 61
Miniratna Category-II 12

Understanding the Concept of Privatization

There are many misconceptions that surround the whole concept of privatization. When the government sells partial or complete stakes in a PSU, it’s called a Disinvestment. A Public enterprise can only be said to be privatized only in the case where the Government sells more than 51% of its share. This means that either the Government sells complete shares or keeps just a minority stake. When the government remains with a minority stake, it loses ownership and control of management.

Need for Privatization

  • Autonomy – PSU suffers from a lack of autonomy. Governments directly or indirectly can control PSUs for short term political gains. This may leave the autonomy and economy in jeopardy. Private organizations have better autonomy and management can function well without fear and bias.
  • Better Policy-making, Better Growth – PSUs suffer from poor policy-making and poor execution of even good policies. Private organizations make better policies and have efficient execution of those policies. Currently, so many PSUs are either in loss, thus putting a financial burden on the government or their profits have been the same over the years. Privatization provides growth to the PSUs and gives them a new life.
  • Increased Profits, Reduced Operating Costs – A PSU is basically a business run by the governments for regional development and public welfare. Therefore, their growth and profits are generally neglected in lieu of the above-listed reasons. However, a private organization has the intent and motive to increase its profit, reduce operating costs and promote overall growth and expansion. In the case of BPCL, its profits have been constant over the years even though they have increased the revenue but also couldn’t control the operating costs.
  • Employee Efficiency – Employees of a government-owned enterprise and a private enterprise have different attitudes, work cultures, and expectations. Employees in a private enterprise tend to be more efficient and productive than a government-owned enterprise due to strict management control as well as incentives in the form of better appraisals, work-based promotions, and growth. Private organizations also hire employees with the latest and better skills.
  • Financing the Increasing Fiscal Deficit – Fiscal deficit happens when the government spends more than it earns. A high fiscal deficit means higher inflation, higher taxes, higher interest rates on loans and reduced growth of the Indian Economy. By privatizing the PSUs, the government is not only getting a huge amount of money that can reduce this fiscal deficit but it also reduces the burden on the citizens. Basically, an average citizen will be benefiting from it as well.
  • Promote competition, Better Customer Services – Privatization can bring in more competition from around the world and they will be competing with other government PSUs in a similar sector or with other private sector enterprises, thus building a better product or provide better services.
  • Investment in Social Programs – Let’s face it, India is a poor country with bad healthcare and education system. The money earned from the PSU disinvestment can be put into social welfare programs such as healthcare, education, employment, etc.

Privatization of BPCL, SCI, CONCOR, THDC, and NEEPCO

Let’s start with NEEPCO (North Eastern Electric Power Corporation) and THDC India Limited. Both of these PSUs are the energy sector PSUs, that generate electricity. The government holds 74.23% in THDC and 100% in NEEPCO and is planning to sell all of its shares. Now, the government is not actually privatizing these two enterprises but they are selling them to another Maharatna category enterprise, NTPC. It basically means that the government is taking money from one pocket and putting it into another. It won’t be affecting these enterprises in any way, but it will benefit the public as well as help these PSUs to grow more. And the news has been good for these PSUs because NTPC shares rose over 3% amid reports to acquire THDC and NEEPCO for Rs. 10,000 crore. THDC has been in more profit in 2018-19 as compared to the year 2017-18. NEEPCO, on the other hand, had lesser profit in 2018-19 as compared to the year 2017-18.

Shipping Corporation of India (SCI) is the Shipping enterprise (Indian Flag Carrier) under the Government of India, that transport goods and passengers. SCI is a Navratna Category enterprise. Now coming to the Shipping Corporation of India, the government holds 63.75% of its shares and has approved the sale of all of its shares. SCI was in a loss last year but before that, its revenue and operating costs have been inconsistent. It will be difficult to sell SCI due to its diversified fleet, which most shipping corporations around the world don’t have. However, SCI will benefit greatly by Privatization. It will bring efficiency and may even boost the profits and assets of the enterprise. SCI is actually getting Privatized, unlike THDCIL and NEEPCO. A stake sale in SCI will fetch the government just over Rs 2,000 crore.

Container Corporation of India (CONCOR) is the Logistics enterprise of the Indian Government. It basically handles the cargo carriers, container ports, and warehouses. It is also a Navratna Category enterprise. The government owns 54.8% of shares in CONCOR and has approved the sale of 30.8% of its shares and will only hold 24% of its shares. This is called Strategic Disinvestment. This means that the government will hold shares in it but will hand over the management control and veto power to the buyers. CONCOR has been a profitable company last year but the profits have been uneven over the years. CONCOR will benefit from the new investors willing to invest more money into the enterprise as well as policy-making and management will become more efficient. A stake sale in CONCOR may fetch the government around Rs 10,800 crore.

Now, let’s address the elephant in the room, that is, the privatization of Bharat Petroleum Corp Ltd (BPCL). BPCL is a Maharatna Category enterprise. It is one of the largest PSU in India as well as a consistently profitable company. But there’s a catch. The profits of BPCL have been constant for the past four years. Its revenue has been increasing but the management of BPCL has been unable to control the operational costs. BPCL should grow at a quicker pace, however, it isn’t. And maybe that’s one of the reasons for Privatization. The government is planning to sell its entire 53.29% stake in BPCL. However, the Numaligarh refinery, which is owned by BPCL will be carved out and sold to some other Indian PSU and won’t be included in the privatization drive due to its strategic location, i.e. Assam. To understand how big BPCL is, you should know that BPCL owns 15,177 petrol pumps and 6,011 LPG distributor agencies around the country. BPCL is also capable of refining 14% of the total refining capacity of India (excluding Numaligarh refinery). BPCL is worth about Rs. 63,000, according to its share price.

We, as Indians, should look forward and move towards a better economy. Privatization will, hopefully, open new avenues of growth and development. Yes, it may reduce the number of government jobs in those PSUs and existing employees might face some uneasiness but the economy will grow and it’s for the long-term benefit of our country. Let’s move out of the socialist policies of the past towards a better tomorrow.

Government has no business to be in business.”