Economic Survey calls for ‘aggressive disinvestment’ of PSUs

New Delhi: The Economic Survey 2019-20 has urged the government to undertake strategic disinvestment of PSUs (public sector undertakings) in an aggressive manner in order to maximise the value of the government's equity stake. The survey, which was released on Friday, affirmed that strategic disinvestment of PSUs improves their performance and overall productivity, and unlocks their potential to create wealth.

Economic survey: Aggressive disinvestment through strategic sale

"This would have a multiplier effect on the other sectors of the economy. Aggressive disinvestment, preferably through the route of strategic sale, should be utilised to bring in higher profitability, promote efficiency, increase competitiveness and to promote professionalism in management in CPSEs," the survey said.

Focus should be to exit from PSUs

The survey observed that the focus of strategic disinvestment needs to be to exit from non-strategic business and optimise the economic potential of CPSEs. This would, in turn, unlock capital for use elsewhere, especially in public infrastructure like roads, power, transmission lines, sewage systems, irrigation systems, railways and urban infrastructure. It is encouraging that the enabling provisions by the Department of Investment and Public Asset Management (DIPAM) are already in place, the survey noted. According to the survey, the Cabinet has 'in-principle' approved disinvestment in various CPSEs. And it urged the government to take up disinvestment aggressively to facilitate creation of fiscal space and improve the efficient allocation of public resources.

BSE CPSE Index returned only 4% between 2014 & 19

The survey notes that there are about 264 CPSEs under 38 different ministries/departments. Of these, 13 ministries/departments have around 10 CPSEs each under its jurisdiction. It is evident that many of the CPSEs are profitable. However, CPSEs have generally underperformed in the market as is evident from the average return of only 4 percent of BSE CPSE Index against the 38 percent return of BSE SENSEX during the period 2014-2019. The aim of any privatisation or disinvestment programme should, therefore, be the maximisation of the government's equity stake value. The survey suggests that the government can transfer its stake in the listed CPSEs to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government stake in these CPSEs over a period of time. This will provide professionalism and autonomy to the disinvestment programme, which, in turn, would improve the economic performance of CPSEs.

'Each privatised CPSE recorded improvement in net worth'

The survey said that in November 2019, India launched its biggest privatisation drive in more than a decade. An "in-principle" approval was accorded to reduce the government's paid-up share capital below 51 percent in select Central Public Sector Enterprises (CPSEs). To examine the efficiency gains from privatisation and whether the purported benefits of privatisation have indeed manifested in the Indian context, the survey analysed the before-after performance of 11 CPSEs that had undergone strategic disinvestment from 1999-2000 to 2003-04.

The survey also examined the change in performance for each individual CPSE. It studied the movement in major financial indicators for each of the firm 10 years before and after the year of strategic disinvestment/privatisation. Taken individually, each privatised CPSE witnessed improvement in net worth, net profit, gross revenue, net profit margin, sales growth in the post-privatisation period compared to pre-privatisation period (except for Hindustan Teleprinters, MFIL and Tata Communications in the case of few indicators).

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