New Delhi: In a big step towards privatisation of many state-owned firms in its second term, the Narendra Modi government has identified 18 strategic sectors, including banking, insurance, steel, fertiliser, petroleum and defence equipment, where it will retain only a limited presence, ThePrint has learnt.
If implemented in its entirety, it will mean the government is completely exiting non-strategic sectors through privatisation or strategic disinvestment. Even in strategic sectors, there will be a maximum of four public sector units and a minimum of one unit operating.
The Department of Investment and Public Asset Management (Dipam) functioning under the finance ministry, which moved a cabinet proposal last month on ‘Redefining Public Sector Participation in Commercial Sector Enterprise’, has classified 18 strategic sectors into three broad segments — mining and exploration, manufacturing, processing and generation, and the services sector.
In the mining and exploration segment, the areas where government will retain limited presence are coal, crude oil and gas, and minerals and metals.
Similarly, in manufacturing, processing and generation segment, the areas where the government will retain limited presence are defence equipment, steel, petroleum (refinery and marketing), fertilisers, power generation, atomic energy and ship building.
And, in the services sector, the areas identified are — power transmission, space, development and operation of airports, ports, highways and warehouses and gas transportation and logistics (not including gas and petro-chemicals trading), contract and construction and technical consultancy services related to strategic sectors and subsectors, financial services for infrastructure, export credit guarantee, energy and housing sectors, telecommunications and IT, banking and insurance.
The biggest fallout is expected to be on sectors like banking, where a large number of state-owned banks operate. Even after the merger of 10 state-owned banks into four last year, and the mergers in 2017 and 2018, there are still 12 state-owned banks in India.
We are deeply grateful to our readers & viewers for their time, trust and subscriptions.
Quality journalism is expensive and needs readers to pay for it. Your support will define our work and ThePrint’s future.
‘Private investors can prove to be a game-changer’
According to the plan, even in sectors that the government proposes to continue its presence, it will hold only that much stake in a firm that is required to retain control.
But the timing of the government’s exit will depend on a number of factors, including market conditions and the feasibility of the proposal.
Sources in the government said that private sector participation will infuse private capital, technology, innovation and bring in best management practices.
“It will give a big boost to the economy by generating jobs. The sectors have huge potential, which is not being realised now because of various reasons. Private investors can prove to be a game-changer in such a scenario,” said a senior official in one of the infrastructure ministries.
According to the Dipam proposal, unlocking of resources by strategic disinvestment of public sector enterprises could be used to finance social sector and development programmes.
India has 348 public sector enterprises and the net worth of the government’s holdings in these firms is around Rs 7 lakh crore, according to government estimates.
If implemented in its entirety, it would be the government’s most ambitious disinvestment plan since 2000 when the Atal Bihari Vajpayee government had started the process of completely exiting public sector firms.
Finance Minister Nirmala Sitharaman had in May announced the government’s intent to reduce its presence in many sectors and allow private participation in all sectors.
Mix of further mergers of banks and privatisation likely
Government sources said the finance ministry will notify the policy within one month of cabinet approval. However, the actual implementation will take much longer.
“It is an announcement of intent. Steps will have to be taken to bring down stakes in these PSUs and eventually exit,” said a senior finance ministry official.
On the banking sector, the official said, the government’s first priority at present is to offload its remaining stake in IDBI Bank as announced in the budget.
In 2018, the Life Insurance Corporation had picked up a majority stake in the bank leaving the government with around 46 per cent shareholding.
“There could be a mix of further mergers among banks and privatisation to bring down the number of state-owned banks to four,” the official added.
Where the policy will not apply
Sources in the government said the proposed policy will not apply to autonomous organisations or trusts, regulatory authorities, refinancing institutions — many of which have been created through Acts of Parliament — such as major port trusts, Airports Authority of India, among others.
It will also not apply to central public sector enterprises that provide support to vulnerable groups through financing of SCs, STs, minorities and backward classes, security printing and minting, organisations like railways and posts that undertake commercial operations with a development mandate.
Department and organisations like railways, airports, ports and National Highways Authority of India, which are not covered under this policy but have undertaken asset monetisation or privatisation of various operations or activities, will continue to do all these.
Subscribe to our channels on YouTube & Telegram
News media is in a crisis & only you can fix it
You are reading this because you value good, intelligent and objective journalism. We thank you for your time and your trust.
You also know that the news media is facing an unprecedented crisis. It is likely that you are also hearing of the brutal layoffs and pay-cuts hitting the industry. There are many reasons why the media’s economics is broken. But a big one is that good people are not yet paying enough for good journalism.
We have a newsroom filled with talented young reporters. We also have the country’s most robust editing and fact-checking team, finest news photographers and video professionals. We are building India’s most ambitious and energetic news platform. And we aren’t even three yet.
At ThePrint, we invest in quality journalists. We pay them fairly and on time even in this difficult period. As you may have noticed, we do not flinch from spending whatever it takes to make sure our reporters reach where the story is. Our stellar coronavirus coverage is a good example. You can check some of it here.
This comes with a sizable cost. For us to continue bringing quality journalism, we need readers like you to pay for it. Because the advertising market is broken too.
If you think we deserve your support, do join us in this endeavour to strengthen fair, free, courageous, and questioning journalism, please click on the link below. Your support will define our journalism, and ThePrint’s future. It will take just a few seconds of your time.