What happens after privatisation of PSUs? Let's look at history
As the government chases its disinvestment target of Rs 1.05 lakh crores, we take a look at the history of privatisation of PSUs in India
November 19, 2019
Public Sector Undertakings (PSUs) have been the backbone of the Indian economy since the time India earned independence. However, at a time when the government is pursuing privatisation/disinvestment
of PSUs with aggression, the dominant narrative being propped up by all and sundry is that the 'government has no business being in business.' As the government chases its disinvestment target of Rs 1.05 lakh crores, we take a look at the annals of history to find the PSUs that have been privatised in the history of India so far and how they have survived or thrived.
According to data sourced from the Department of Public Enterprises (DPE)
data, the first major disinvestment/privatisation of PSUs was undertaken during the NDA regime under Prime Minister Atal Bihari Vajpayee. Following a brief interruption during the UPA I & II rule, disinvestment/privatisation of PSUs has again been put on the forefront by the BJP regime.
The objectives of the government behind disinvestment/privatisation of PSUs is usually to reduce the financial burden on the government, improve public finances, introduce competition and market discipline, fund growth or encourage a wider share of ownership, depoliticise non-essential services. Here are some of the PSUs which have been fully or partially disinvested so far:
Modern Food Industries Limited (MFIL)
Modern Food Industries (I) Limited was incorporated in 1965. As part of the NDA-led government’s disinvestment programme, 74 percent equity shares was sold to Hindustan Unilever Limited (HUL) for Rs 149 crore in January 2000.
Now the company is called Modern Foods Enterprises Private Limited and it is 100 percent owned by Everstone Capital. Its authorized share capital is Rs 240 crore and its paid-up capital is Rs 199.85 crore.
Bharat Aluminium Company (BALCO)
Bharat Aluminium Company (BALCO) was incorporated in 1965. The PSU played a vital role in the aluminium industry by producing household, industrial, aerospace and defence products. In 2001, the government sold 51 percent equity share of BALCO to Sterilite Industries, a company owned by Vedanta Limited (Vedanta group), for Rs 826.5 crore.
Currently, BALCO is owned by Vedanta group. It has total assets of 14,387.49 crores as on March 31, 2019.
CMC Limited (CMC)
Computer Maintenance Corporation (CMC) was incorporated on December 26, 1975. The CMC was privatised in 2001, the government sold 51 percent stake to Tata Sons Limited for Rs 151 crore through strategic sale and CMC became a part of the Tata group. Later, the government divested its remaining 26.5 percent stake in CMC to the public in 2004.
CMC Limited is now Tata Consultancy Services, which is one of the most profitable companies in the country. The company has reported a consolidated revenue of Rs 1,46,463 in FY 2018-19.
Hindustan Teleprinters Limited (HTL) Limited
HTL Limited was incorporated in 1960. The government sold 74 percent equity share of the company to Himachal Futuristic Communications Limited (HFCL) just for Rs 55 crore in May 2000.
The company had registered a revenue of Rs 2,551 crores in FY 2014-15. The government still retains a 26 percent equity share in the company.
Indian Petrochemicals Corporation Limited
Indian Petrochemicals Corporation Limited (IPCL) was a petrochemicals company in India and was established in March 1969. In 2002, the government sold 26 percent equity shares of IPCL to Reliance Petroinvestments Limited (RIL) at Rs 1,490.84 crores in May 2002. Later in 2007, IPCL merged with Reliance Industries Limited.
Jessop & Company Limited (Jessop)
Jessop & Company Limited is India's oldest engineering company, established in 1788, as a private firm. Later in 1973, the company was undertaken by Bharat Bhari Udyog Nigam (BBUNL), a PSU under the administrative control of Department of Heavy Industry and Ministry of Industry, and Jessop became a subsidiary of BBUNL.
In 2003, the government sold its stake in Jessop & Company Limited under the privatisation programme. The government sold its 72 percent stake to Ruia Contex Group owned by Pawan Kumar Ruia, for Rs 18.18 crore, who turned it into a profit-making entity.
Lagan Jute Machinery Company Limited (LJMC)
Lagan Jute Machinery Company Limited (LJMC) was a subsidiary company of BBUNL. It was the first case successful privatisation of PSUs. In July 2000, the government sold 74 percent equity shares at Rs 2.53 crore. After privatisation, the company not only performed well but even introduced new products and revamped the marketing function.
Maruti Udyog Limited (MUL)
Maruti Udyog Limited (MUL) was founded by the government in 1981 and the first manufacturing factory of Maruti was established in Gurgaon, Haryana, in the same year. The government in the first phase sold 49.74 percent stake of MUL in 2002 to Suzuki, a Japanese automobile manufacturer company, for 2,424 crores under its disinvestment programme. Later in June 2003, the government held an initial public offering (IPO) of 25 percent of the company in June 2003. In 2007, the government sold its entire share to financial institutions.
By July 2018, the company is a subsidiary of the Japanese car and motorcycle manufacturer Suzuki Motor Corporation (which holds 56.21 percent) and had a market share of 53 percent in India.
Paradeep Phosphates Limited (PPL)
Paradeep Phosphates Limited (PPL) was incorporated in December 1981. It was a loss-making company. In 2002, the government sold its 74 percent equity shares through strategic sale on February 14, 2002, to M/s Zuari Maroc Phosphates Private Limited for Rs 151.70 crore.
Now, Paradeep Phosphates Limited (PPL) is a leading fertiliser company with an annual turnover close to Rs 5,500 crores. The govt still retains a 19.55 percent equity share in the company.
Videsh Sanchar Nigam Ltd. (VSNL)
VSNL was founded as Videsh Sanchar Nigam Limited (VSNL) in 1986. In 2002, the government sold 25 percent stake out of 52.97 percent in the company for Rs 3,689 crores to Tata Group. Later, Tata Group acquired a 45 percent stake in VSNL. VSNL was completely acquired by the Tata Group and renamed as Tata Communications on February 13, 2008.
In FY2017-18, Tata Communications posted an annual revenue of Rs 17,095 crores. The government still retains a 36 percent equity share in the company.
So, is privatisation good and in the interest of the nation?
There are no easy answers to this question. Privatisation leads to creation of wealth. The cost of production is reduced and profits are maximised. It is certainly a good step if the government feels that a particular sector can be opened up to competition
and it will benefit the market and the consumer. However, this does not hold true always. Sometimes, it also leads to corporate monopolies
as the big assets created by the government are handed over to a bunch of corporates.
At the same time, PSUs have an important role to play in the economy. Because PSUs can never solely be driven by the idea of creating wealth, they cannot be compared to the private sector. The government starts business ventures/PSUs to provide employment to people and have a presence in areas where the private sector wouldn't go because they do not make commercial sense. Because these companies are responsible for social welfare, they have a larger workforce when compared to the private sector. Therefore, despite the fact that the cost of production is high, PSUs cannot be done away with.
The ideal way to proceed, for any government, would be to go for privatisation with a view to bring in more competitors and bring in reforms to make the public sector more efficient.