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Not clear what changed PM Modi's mind on privatisation

Most of the public companies to be privatised by the Modi govt not just earn profits but also operate in sectors with buoyant demand

Not clear what changed PM Modi mind on privatisation

Sai Manish New Delhi
The Modi government has cleared the decks for complete sale and strategic investment of some profitable public sector units (PSUs). The assets of some others will be also put up for sale. This seems to be a big departure from Prime Minister Narendra Modi assertion in an interview with the Wall Street Journal (WSJ) in May this year that it wasn’t desirable to get rid of PSUs. Modi in an interview to WSJ’s Editor-In-Chief Gerard Baker said: "In any developing country in the world, both the public sector and the private sector have a very important role to play. You can’t suddenly get rid of the public sector, nor should you."
 

The government had even put the privatisation of IDBI Bank on hold. What changed PM Modi’s mind in these four months since the WSJ interview is unclear.

Two PSUs in particular which may have been put under the hammer raise eyebrows. Both are well performing companies with product portfolios and business verticals that could make them even more profitable in the future and help the government cut its fiscal deficit. After all, these units are being sold precisely for this reason.  

The first one, Pawan Hans, is the government’s chopper operator. It provides yeoman service in hilly areas and during catastrophes. During the Uttarakhand tragedy in 2013, Pawan Hans choppers recued 20,000 people and ferried 500 tonnes of aid, working along with rescuers from the Indian Air Force. Over the last two years, Pawan Hans has registered healthy profits exceeding Rs 70 crore each year. During the erstwhile UPA-2 government, the chopper operator has been profitable for most of its years. The government wants to completely wash its hands off Pawan Hans.

Not just did the government ignore the company’s profitability but also seems to have turned a blind eye to its future potential. There has been an increasing demand from India’s growing upper middle class for chopper charters either for pilgrimages or weekend getaways. With chopper services to Vaishno Devi and Amarnath shrines, Pawan Hans has a foot in that market. Its choppers are also always on contract with Oil and Natural Gas Corporation of India (ONGC) for its offshore rig operations ensuring a steady revenue stream. So, the rationale behind the sale looks befuddling.

The second one is Bharat Earth Movers Limited (BEML). The government is considering halving its stake and becoming a minority shareholder. BEML has had its share of ups and downs. From a profit of Rs 268 crore in 2008-09, when UPA-2 came to power, it was down to suffering losses to the tune of Rs 80 crore by the time the Modi government came to power.

Since 2013-14, BEML has consistently made profits. Its product portfolios include making railway wagons and coaches for metro rail in addition to vehicles for the defense forces. BEML along with Hyundai and Mitsubishi has made metro rail coaches for Delhi, Jaipur, Ahmedabad, Chennai and Kolkata Metros. With further expansion of metro services in other Indian cities, the demand for BEML products will increase. Similarly, railway freight traffic is expected to double over the next year. The demand for heavy duty earth moving and mining equipment is also perennial. BEML supplies equipment that is essential for building the infrastructure backbone of any country or company — products that do not go out of date.

Other units which will be completely sold by the government have also been profitable. Scooters India, which manufactures three wheelers called Vikram, has earned Rs 30 crore in profits over the last three years.

The Bridge & Roof Company of India, involved in lucrative infrastructure development projects in South Asia, has consistently earned profits since 2008. Ferro Scrap Nigam, also to be privatized, has made profits over the last few years. It has a contract to supply the Durgapur steel plant of Steel Authority of India Ltd (SAIL) with scrap iron. Interestingly the government is also planning to sell off the Durgapur plant along with Ferro Scrap Nigam.

So despite having companies with future potential to augment its revenues, the government wants to sell them off. One of the primary reasons behind this is the Niti Aayog’s suggestion of selling off PSUs to unlock the value of their assets including vast land holdings.

Most of the current lot of PSUs put on sale have impressive assets at their disposal. For instance, BEML’s factories span many acres in Bengaluru, Mysore and Palakkad. Its regional offices in various Indian cities are valuable real estate. Hindustan Newsprint has over 3,600 hectares of captive plantations in Kerala in addition to a huge factory in the state.

Pawan Hans, among other assets, has 25 acres of land at Rohini in the national capital Delhi for a helipad. The Bridge & Roof Company of India has huge land holdings near Kolkata. Meanwhile, Central Electronics Limited, another PSU to be sold by the government has a factory located in Ghaziabad. This land is surrounded by real estate projects and is being keenly eyed by builders.

It is clear that the performance of these PSUs have been good. In some cases, better than their debt ridden private sector counterparts. The products they make and the services they render will always be in demand – from metro coaches, railway wagons, bridges, chopper charters or even gas fueled auto rickshaws.

What seems to be lacking is the Modi government’s intent to take these PSUs to the next level of performance and growth. For now, the Niti Aayog’s advice of monetising PSU assets to reduce the fiscal deficit planted in the government’s head seems to be fueling its privatisation drive.  

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First Published: Oct 28 2016 | 2:30 PM IST

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