What is the issue?
- The Cabinet has decided to approve strategic disinvestment of the government’s shareholding in five public sector enterprises (PSUs).
- This can at best be described as a practical exit.
What is Disinvestment?
- Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary.
- Absent of sale of an asset, it refers to capital expenditure reductions, which can facilitate the re-allocation of resources to more productive areas within an organization or government-funded project.
Why this decision was taken?
- PSUs - The government will disinvest its shareholding in 5 PSUs.
- Bharat Petroleum Corporation Limited (BPCL),
- Shipping Corporation of India (SCI),
- Container Corporation of India (CONCOR),
- Tehri Hydro Power Complex (THDC) India Limited and
- North Eastern Electric Power Corporation (NEEPCO).
- Faced with a massive shortfall in revenue and capital receipts, the share sale is aimed at helping the government narrow the yawning fiscal gap.
- Facts - As of 30th September 2019, net tax revenue had only reached 36.8% of the budget estimate of ₹16.5 lakh crore for the full year.
- According to the Controller General of Accounts, the non-debt capital receipts were at 17.2% of the fiscal’s target of about ₹1.2 lakh crore.
- Finance Minister Nirmala Sitharaman had made clear in 2019 Budget speech that select and strategic disinvestment would remain a priority.
- The Cabinet’s decision to sell the Centre’s entire 53.29% ownership in BPCL, all of its 63.75% holding in SCI and 30.8% of its stake in CONCOR is an attempt at ensuring the actualisation of this policy approach.
What is the rationale behind this move?
- Unclear move - The underlying rationale behind this government’s disinvestment programme remains unclear.
- It would be perfectly understandable if the aim was to exit unprofitable, non-strategic businesses.
- But, BPCL is a profitable refiner and oil marketing company that has consistently paid a healthy dividend.
- It has also made investments in upstream energy resources and holds interests in overseas hydrocarbon blocks.
- To that extent, a full sale now deprives the government of all upside potential.
- The BPCL stake could fetch the national treasury about ₹59,000 crore.
- So, the Cabinet’s decision to carve out and exclude the company’s holding in Assam’s Numaligarh refinery would surely peel the price it could get from a prospective buyer.
- Political precedence - The lack of an explanation for the logic behind the move also hints at politics taking precedence over any economic interest.
- Especially, the ruling party is keen to strengthen its newfound sway in the restive north eastern States.
Why should the government fasten the process?
- With just a little over four months left in the financial year, how the government intends to actually complete the transaction is a big question.
- The government will transfer its stakes in THDC India Limited and NEEPCO to the captive buyer, state-owned National Thermal Power Corporation Limited (NTPC) will obviously take time.
- This will take time as the market sale of the bigger-ticket stakes may pose a challenge.
- With just ₹17,364 crore of the ₹1.05 lakh crore disinvestment target realised so far, the Centre has little choice but to expedite these strategic sale proposals in double-quick time.
Source: The Hindu
