There is a method to India’s sell-off agenda
Just a few weeks ago, the government gave advocates of privatization reason to cheer by announcing the sale of its stake in several state-owned companies. For a dispensation that was seen as dragging its feet on this agenda in its previous term, it seemed like an “at last” moment of relief. For a regime that sorely needed to shore up its finances to cover a drastic shortfall in tax revenue, its words were taken as a precursor to action. However, as Mint reported on Thursday, time for offloading equity has begun to run out and, going by the tardy progress on Air India, Bharat Petroleum Corp. Ltd (BPCL), and Container Corp. of India Ltd (Concor), all slated to be wholly or partially hawked, the Centre looks likely to meet only about half its targeted ₹1.05 trillion by the end of this fiscal year. Delays on disinvestment are not new and, while they could adversely impact fiscal health, observers also need to bear in mind that this is not only about raising money. What we also need to ask is whether the pattern of sell-off proposals has an underlying plan that could do the economy some good. On this, there is some cause for optimism.
The government has been clear that it will remain in the business of banking. Many believe that banks would perform better in largely private hands and this may well be true. However, so long as their balance sheets can be cleaned up, governance reformed and profitability restored, public ownership has some merit since it is a sector vital to our broad economic interests. While the government works on fixing banks, the debate on their privatization can wait. What’s noteworthy is that our broad template amounts to a rejection of the Chinese model of heavy state intervention in the economy, with state-owned firms at the commanding heights of strategic sectors even beyond finance, such as telecommunications, energy and engineering. India’s liberalization has let the private sector gain major shares of the latter three markets. Telecom is the most prominent example of that. Even in energy, state dominance would decline if BPCL is bought by a private business or group of investors. There have been some cases of one state-owned company buying another, but signals from the government suggest that its Indian Oil Corp. will not bid for BPCL. While expression of interest documents are still being prepared and an acquirer of majority control of BPCL may need to make an open offer to its minority shareholders, a delay in its sell-off should not raise doubts over the government’s intent in the energy sector. Fuel retailing is also to be opened up and private competition is likely to be good for the market.
Logistics is another sector where the Centre appears keen to make space for private players. The Shipping Corp. of India and Concor are on the sale list. This is an industry that could do with the efficiency gains of private management and, if it is transformed, it could play a role in aligning Indian logistics costs with those elsewhere in the world and thus aid other domestic ventures. The sooner it happens, the better. Pricing state assets is always tricky, but lessons learnt from this year’s listing of railway ticketing company IRCTC could come in handy. So long as the overall aim of the sell-off agenda is economic efficiency, it deserves support.