India's $24 bil. divestment plan which offers investment galore runs into opposition
By Atul Ranjan
NEW DELHI, NNA - After delays caused by the coronavirus pandemic last year, India is bent on pushing through an ambitious $24 billion divestment plan this year despite widespread protests by powerful unions, political groups and long-serving workers of state-owned companies.
For 30 years, the government has made efforts to sell state assets but the results have been uneven and far from ideal mainly because of strong opposition from workers afraid they might lose their jobs or be worse off.
However, delays and pandemic-devastated economy last year has forced the government to put divestment back on track so that it could also obtain much needed funds for the new fiscal year starting in April.
Giving her budget speech in February, finance minister Nirmala Sitharaman did not mince her words when she said state ownership would be reduced to a “bare minimum presence” in some strategic areas.
India's policy of divestment is either through its minority-stake sale or a strategic disinvestment involving a substantial sale of shareholding of a state-owned firm along with transfer of management control.
Four broad sectors have been identified for divestment. They are atomic energy, space and defense; transport and telecommunications; power, petroleum, coal and other minerals, and lastly, banking, insurance and financial services.
When unveiling the budget for the new financial year, the finance minister said the privatization of large central public sector enterprises (CPSEs) such as gas giant Bharat Petroleum Corp. Ltd. (BPCL) and national carrier Air India will be completed within the year.
She also proposed the privatization of two banks and India's largest insurer, Life Insurance Corp. of India (LIC). For LIC, an initial public offering (IPO) is being planned for later this year.
In February, the Securities and Exchange Board of India changed rules to make it easier for the government to sell a part of its stake in LIC through public listing.
An official involved in the divestment plan told CNBC earlier this month that the government is making headway in its plan for Air India and aims to sell its entire stake by June.
Earlier in January, the government had given in-principle nod for 100 percent disinvestment of steel producer Rashtriya Ispat Nigam Ltd. (RINL) and its stakes in subsidiaries or joint ventures.
Others believed to have been earmarked for privatization include Shipping Corp. of India; Container Corp. of India; IDBI Bank; heavy equipment manufacturer BEML Ltd., and helicopter service company Pawan Hans.
To hasten the process, the government’s think tank NITI Aayog has been tasked to identify government assets for sale.
According to news reports, the think tank has already submitted its first list of a dozen public sector undertakings (PSUs) proposed for privatization. They are being considered by the Department of Investment and Public Asset Management (DIPAM), and a core group of secretaries on divestment (CGD), headed by the cabinet secretary.
However, protests from labor unions and political parties have been mounting against privatization despite the government taking pains to explain how private capital would boost business performance and expansion for under-performing enterprises, create more jobs and help take the nation forward.
Addressing their concerns in a written reply to a question in Parliament, finance minister Sitharaman said, “While deciding the terms and conditions of the strategic sale, legitimate concerns of the existing employees and other stakeholders are suitably addressed through appropriate provisions made in the share purchase agreement.”
The assurance, however, has failed to assuage the concerns of stakeholders.
Earlier this month, the chief minister of the southern Indian state of Andhra Pradesh, where steel-maker Rashtriya Ispat Nigam is located, wrote to Prime Minister Narendra Modi seeking a meeting to “explain and discuss various options for the revival of RINL".
Appealing against the 100 percent divestment, the chief minister pointed out that it is the largest public sector industrial unit in the state offering "employment opportunities for close to 20,000 people directly and other indirect employment opportunities."
Among the counter-proposals brought forward by the state government are allocating captive iron ore mines to RNIL to bring down the input costs, swapping high-cost debt with low-cost debt, converting debt into equity and monetization of vacant land.
On Monday (Mar.15), various bank unions including the All India Bank Officers’ Confederation (AIBOC), an apex trade union of bank employees, kicked off their two-day nationwide strike against the proposed privatization of two state-owned banks.
“We are on to a decisive battle waged by trade unions in the banking industry. Consequences of privatization of state-owned banks are unimaginable and catastrophic” said Soumya Datta, general secretary of AIBOC.
Criticizing the government reforms as "misplaced", Datta told NNA that the state should help the recovery of non-performing assets to sustain the banking system instead of “handing over nation assets to crony corporate houses”.
For years, a nation-wide movement has campaigned against crony capitalism and unregulated greed as they called out crooked politicians and businessmen.
“We are going to launch a mass movement across India against the government’s privatization move,” said Datta, who made it clear that there would be no negotiation with the state as long as privatization is on its agenda.
Also opposing the government’s move to privatize LIC is the All India Insurance Employees Association (AIIEA). It is planning a one-day strike on March 18.
What has become more alarming is that AIIEA is looking to join hands with central trade unions and also some farmer groups currently protesting against new farm laws near New Delhi.
Shreekant Mishra, general secretary of AIIEA, sees the collaborations as a "classic display of peasants-workers alliance in the cause of the public sector”.
Experts like Vinay K. Srivastava, the author of ‘Privatization of Public Enterprises in India’, say the traditional opposition from employees and trade unions and lack of strong political will have been stumbling blocks to India's divestment plans which first rolled out in the 1991-92 financial year.
“Concerns over long-term job security is one of the key reasons that drive such opposition by the public sector employees in the country,” Srivastava told NNA.
He expects the government to miss its divestment target again this year judging from its "dismal' performance in the past.
According to data by the Bombay Stock Exchange, the country managed to achieve only around 45 percent of its targeted divestments since the 1991-92 fiscal year. It only met its annual target in six out of the last 30 years.
However, observers believe that the government is now seriously determined to push through its plan because of the urgent need to generate funds in the new fiscal to help repair the economy which entered an unprecedented recession.
“The government is doing groundwork for stake sales in state-owned firms. Last year, they couldn’t do much. But this time, the government is likely to push it very hard,” D.K. Joshi, chief economist of ratings agency Crisil told NNA.
Agreeing, economist and author Vivek Kaul said the government has no choice but to go ahead to raise funds for stimulus spending.
He told NNA, “There’s no doubt about the government’s move to sell stakes in state-owned firms. Some expected to be privatized include banks, which will face opposition from several groups."
However, he is skeptical that the government could achieve its $24 billion target though a successful LIC IPO may contribute a "reasonable part”.
Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), firmly believes in prime minister Modi when he reiterated the administration’s commitment to privatize all public sector enterprises.
“His assertion that the government had ‘no business to be in business’ lends further credence to that intent,” said Banerjee.
He added that there is a need to improve the quality of receipts from disinvestment by going for genuine sales, rather than resorting to convenient moves that see one public enterprise acquiring another as seen in some past cases.
Meanwhile, commodity magnate Anil Agarwal of mining firm Vedanta Resources Ltd., has already set his eyes on opportunities in state disinvestments.
Last month, he announced that he has partnered London-based global investment firm Centricus to create a $10 billion fund for buying stakes of state-owned firms.
“We are excited with the Union Budget’s strong focus on disinvestment and would like to participate in the exercise,” Agarwal said in a tweet on Feb.12.
Last month, while dwelling on the importance of disinvestment during a webinar, Prime Minister Modi acknowledged that many public sector enterprises were losing money and had to be supported by taxpayers, which, in turn, weakened the economy.
“These public sector enterprises need not be kept running just because they've been running for so many years,” he said.