Being A PSU Is Not An Easy Business!

India’s disinvestment drive has failed to excite investors. But a closer look reveals long-term returns.
 

- Rajiv Bhuva

They were once known as India's crown jewels. But nearly 70 years after independence, many state-owned firms have lost some of their lustre. Not surprisingly, the government has put several poorly performing public sector companies on the block as part of a disinvestment programme that kicked off in 1991 after economic liberalisation and gathered pace between 2001 and 2004 when the BJP-led National Democratic Alliance was in power.

But the government’s disinvestment targets have proved elusive in recent years. Despite some big-ticket sales such as Maruti Udyog and Hindustan Zinc, India has managed to raise as much as it hoped just three times since 2001 and is on course to miss its target for the seventh straight year. Total disinvestment receipts for the current financial year stood at almost Rs 37,700 crore as of Feb. 14, way short of the goal of Rs 56,500 crore.

The state offerings have failed to whet investor appetite because of a lack of confidence in corporate governance and growth prospects. But the government doesn’t have a choice. It needs the money from disinvestment to help plug the yawning fiscal deficit, one of the widest in Asia, and sustain 7% growth. Prime Minister Narendra Modi’s aggressive spending plans to revive the economy have only fuelled the urgency.

The government might have failed to meet its disinvestment targets, but that hasn’t stopped the government from setting the bar even higher in the FY18 budget, which aims to raise Rs 72,500 crore through the sale of stakes in state firms. It’s an ambitious figure, as the government hopes to raise in just a year about a fifth of total disinvestment receipts of Rs 3.4 lakh crore since liberalisation in 1991.

Whether or not it’s a realistic target, the question is: Is investor distrust in state assets justified? To arrive at an answer,