With a sell-off in mind, government to consolidate operations of PSEs

Union Finance Minister Nirmala Sitharaman on Sunday said the government would come out with a new policy that would identify strategic sectors

The government’s move to draw a fresh list of strategic sectors that would have not more than four public sector enterprises (PSEs) would lead to ownership changes and realignment of businesses. 

Though only atomic energy and railway operations are currently listed as strategic sectors, these, too, have seen private sector involvement.

While unveiling the last tranche of stimulus package to deal with the economic impact of the lockdown, Finance Minister Nirmala Sitharaman said on Sunday: “PSEs play an important role in defined areas. We will come out with a coherent policy where private sector will be allowed, but PSEs will continue to play an 

important role.”

In the notified strategic sectors, at least one PSE would be present. “However, it would be only one to four in strategic sector. They will be merged or brought together, so there won’t be mushrooming of public sector,” she said, while adding that private sector could come in strategic sector. 

The idea is to minimise wasteful administrative costs so PSEs will be privatised, merged, or brought under holding companies, she said.

 

 

The number of strategic sectors could only go up from the current two. This implies that in the new notified sectors, not more than four government companies would exist. This would give a push to the Centre’s disinvestment programme either through sale of government holding in the market or to private entities or to other PSEs. Officials said instead of coming up with a list of firms for disinvestment, NITI Aayog could prepare a list of ‘strategic sectors’. This will be done after consultation with various ministries and after approval from the Cabinet. There may be no more than six to seven sectors in this list.

The proposed move will not impact existing strategic sale plans, including that of national carrier Air India. “This policy will in no way affect the privatisation of Air India,” said Expenditure Secretary T V Somanathan.

Another senior government official said that the FM’s statement was in favour of more privatisation, and will guide the Centre’s policy on privatisation going ahead. “Remember, this is the first time the government is using the word privatisation, instead of strategic sale. This is not an anti-privatisation move by any means,” the official said.

According to Ranen Banerjee, leader, economic advisory, PwC, reducing the number of PSEs could remove inefficiencies while creating big PSEs that could provide scale in domestic market while giving strategic lever to the country globally. As on March 31, 2019, there were 339 central PSEs with a total investment of Rs 16,40,628 crore and paid-up capital of Rs 2,75,697 crore.

The government plans to give up complete ownership in the non-strategic sectors, but it is not yet clear over what period of time. The move to invite private sector would, however, not mean much at this point of time. Almost all sectors of the economy already have big private sector players, including foreign companies. The Indian Railways, too, has in-principle decided to hand over running of some trains to private companies. The current crisis, in fact, had forced the government to postpone its privatisation plans for companies like Bharat Petroleum Corporation of India and Air India. 

In April 2018, the department of public enterprises presented a Vision 2022 plan to Prime Minister Narendra Modi, which finds reflection in the FM’s announcements. 

The strategic sectors of economy were earlier defined by the industrial policy, which over the years has undergone a lot of change. The Central Public Sector Enterprises (CPSEs) were classified as ‘strategic’ and ‘non-strategic’. Strategic CPSEs were earlier identified as arms and ammunition and allied items of defence equipment, defence aircraft and warships; atomic energy, except in the areas related to the operation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industry; railway transport. All other CPSEs were considered as non-strategic. 

According to the department for promotion of industry and internal trade, however, the number of industry reserved for public sector was reduced in consistency with the policy of liberalisation of the domestic industry. During 2014, private investment in rail infrastructure was permitted. 

Consequently, at present, only two industrial sectors are reserved for public sector — atomic energy and railway operations — other than construction, operation, and maintenance of suburban corridors, high-speed train project, dedicated freight lines, rolling stock including train sets, and locomotives/ coaches manufacturing and maintenance facilities, railway electrification, signalling systems, freight terminals, passenger terminals, and railway line/sidings in industrial park, connectivity to main railway line and mass rapid transport systems.