Gist of Monetise & Modernise - Mantra For PSEs | Gist of Rajya Sabha TV / RSTV (now Sansad TV) - UPSC PDF Download

Context

Reiterating the government's commitment towards privatisation of PSUs and asset monetisation, Prime Minister announced that the motto of his government is to "monetise and modernise".

• Addressing a webinar on the Budget announcements for the Department of Investment and Public Asset Management (DIPAM), the Prime Minister asked the private sector to come in support of the government's initiatives proposed in the Budget and help it prepare the roadmap for accelerated growth. 
• Emphasising on the role of the private sector, PM mentioned that the Budget also focused on the strong partnership between the private players and the Centre and the funds mobilised through asset monetisation and disinvestment will be used for public welfare measures. 
• Budget has targeted monetising 100 government assets, which would create investment opportunities worth Rs 2.5 lakh crore.

Summary of the Debate

Disinvestment and Objective

• Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
• The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources. 
  • In some cases, disinvestment may be done to privatise assets. However, not all disinvestment is privatisation. 
• Benefits of Disinvestment: Disinvestment can be helpful in the long-term growth of the country; it allows the government and even the company to reduce debt. 
  • Disinvestment allows a larger share of PSU ownership in the open market, which in turn allows for the development of a strong capital market in India.
• Main objectives of Disinvestment in India:
  • Reducing the fiscal burden on the exchequer
  • Improving public finances
  • Encouraging private ownership
  • Funding growth and development programmes
  • Maintaining and promoting competition in the market

Types of Disinvestment Methods

• Minority Disinvestment
  • Minority disinvestment in PSUs is such that, at the end of it, if the government of India retains a majority stake (typically more than 51%) in the company, it ensures management control.
  • Historically, minority stakes have been either auctioned off to financial institutions or offloaded to the public by way of an offer for sale.
  • Some examples of minority disinvestment via Offer for Sale include recent issues of Power Grid Corporation of India Ltd., Rural Electrification Corporation Ltd., NTPC Ltd., NHPC Ltd., etc.
• Majority Disinvestment
  • Majority disinvestment in PSUs is such that, at the end of it, the government of India retains a minority stake in the company i.e. it sells off a majority stake. It is also called Strategic Disinvestment.
  • If we look into the disinvestment history, majority disinvestments have been typically made to strategic partners of the government of India.
  • These strategic partners could be other Central Public Sector Enterprises (CPSEs) themselves, a few examples being BRPL/MRL to Indian Oil Corporation Ltd. (IOC) and KRL to BPCL.
  • Alternatively, these strategic partners can be private entities, like the sale of Modern Foods to Hindustan Lever Ltd., CMC to Tata Consultancy Services Ltd. (TCS).
  • Also, same as in the case of minority disinvestment, in majority disinvestment case the stake can also be offloaded by way of an Offer for Sale, separately or in conjunction with a sale to a strategic partner.
• Complete Disinvestment
  • Complete disinvestment or privatization is a form of majority disinvestment wherein 100% control of the company is passed on to a buyer i.e government of India completely disinvests from that PSU.
  • Example of this includes 18 hotel properties of India Tourism Development Corporation (ITDC).
    

Importance of Disinvestment and Modernising PSUs

• Disinvestment of the government stakes in these companies, thus, it far too significant in the Indian economy. The disinvested money can be used for:
  • Financing India’s increasing fiscal deficit
  • Financing large-scale infrastructure projects across the country
  • Increasing consumption and demand
  • Minimizing government debt – Almost 40-45% of the Centre’s revenue receipts go towards repaying public debt or interest in the same
  • Implementing social programs in health and education sectors
• On the other hand, private entities or companies buy these disinvested stakes in PSUs for a cheap price and the skills, discipline, and talent brought in by such private entities helps in improving the overall performance of such Sick Units.

Challenges with Disinvestment

• It needs to be finding that what kind of PSUs and their assets are required to sell. All PSUs cannot be treated equally. 
• Many PSUs do not require their land and land price is never fixed. So, declaring base price of PSUs is a difficult task. 
• Government is not able to sell some PSUs because private players do not see any profit there. 
• Land is a very tricky issue and has never a fixed price.

Way Forward

• There should be no rush in selling assets as it can create troubles. There is a need of flexible pragmatic approach.
• Government can help by infusing fund where private players do not want to take PSUs and land.
• Technology can play a great role in modernising the PSUs. It also needs a strategic vision and partnership between government PSUs and the private sector. 
• Alongside disinvestment there is also a need of bringing reforms in PSUs.

PSUs

• The government owned corporations are termed as Public sector Undertakings (PSUs) in India. 
• In a PSU majority (51% or more) of the paid share capital is held by central government or by any state government or partly by the central government and partly by one or more state governments.

The public sector can be classified into:

• Departmental Undertaking – Directly managed by concerned ministry or department. (e.g. Railways, Posts, etc.)
• Non-Departmental Undertaking – PSU (e.g. HPCL, IOCL, etc.)
• Financial Institution (e.g. SBI, UTI, LIC, etc.)