THE sale of Air India seems to be well and truly underway despite some false starts. This is not the first plan to sell a public sector undertaking (PSU) by the Modi government, but it is the most high-profile one. The other one inching forward is the sale of oil refiner and retailer, Bharat Petroleum Corporation Limited (BPCL). But these are only initial moves in the direction of public sector privatisation despite many statements of intent by the Modi government over the last six years. This is a far cry from the Vajpayee regime which launched an era of privatisation yet to be equalled by any subsequent government. The UPA stalled the process despite the pioneer of economic reforms, Dr Manmohan Singh, being the Prime Minister. It was then expected that Narendra Modi’s entry, with Arun Jaitley as his Finance Minister, would mean a revival of the strategy of public sector disinvestment. Jaitley was the first-ever Disinvestment Minister under Vajpayee, though it was the next one, Arun Shourie, who actually managed to privatise several companies. The expectations became even greater when PM Modi said in interviews that the government has no business to be in business.
Instead, the Modi government has only sold small chunks of government equity stakes in several enterprises, primarily to achieve the annual disinvestment revenue targets. The UPA also diluted shareholding in many PSUs for the same short-term goal of raising resources. The NDA has gone a step further by carrying out the exercise of making one profit-making company buy shareholding in another one. For instance, the ONGC was asked to buy the government stake in HPCL for Rs 36,915 crore. Not a single public sector company has been privatised as yet, disappointing those who were expecting big-bang economic reforms from a government from which much was expected, given its comfortable majority in Parliament.
This scenario could now change as the sale of Air India and BPCL seems to be imminent and this could be a first step in disposing of many other loss-making public sector enterprises. The move towards privatisation means utilising resources that are currently unproductive in a constructive manner. According to official data till March 2019, the total losses incurred by these companies were estimated at Rs 31,000 crore. Out of these, a list of 23 companies meant for privatisation is reported to have been cleared by the Cabinet earlier this year. This includes defunct companies like Scooters India Limited which was among those considered for strategic sale as far back as the tenure of the Rajiv Gandhi government. Political pressures prevented its sale as well as many others for decades even though they are virtually non-operational.
The question is: why have these companies been allowed to remain in existence for so long? One of the main issues always raised in this regard has been the need to protect workers’ interests. This is surely an important aspect and should not be overlooked in any privatisation process. But it needs to be resolved by formulating a social safety net such as viable voluntary retirement schemes. The one offered to BSNL employees, for instance, has been so successful that the number of employees in that behemoth have fallen significantly, raising prospects of the company’s revival. Given the fact that concerns about employees’ welfare are one of the main reasons for opposition to privatisation, it would be a good idea to formulate a model package to deal with workers’ rehabilitation and support in all such cases.
The issue of employees will have to be dealt with in different ways in Air India and BPCL since the two cases are poles apart. The first is a heavily loss-making concern saddled with a debt overhang of over Rs 60,000 crore, while the second is a profitable concern that has a 22 per cent share of the fuel market. Despite its heavy losses, the sale of Air India has been kept on the backburner in the past on the grounds that it is a valuable national carrier and sale to a private entity would mean a loss of prestige for the country. Fortunately, such concerns are no longer being raised in view of the recognition that operating the airline is an enormous drain on the country’s resources. Besides, it became clear it was not going to be easy to sell this particular crown jewel when the first round failed in 2018. The offer finally had to be sweetened by allowing the buyer to decide on the level of debt to be taken on and offering 100 per cent equity stake.
As for BPCL, divesting the profit-making oil company is a strategic move to progressively take the government out of a sector that is heading for the sunset in the long run. It is a better proposition to make the sale at a time when its valuation is enhanced rather than waiting for a later date when the scenario may not be so bright. The issues of climate change and the need to shift to electric vehicles have already raised questions over the prospect of future growth in petroleum demand. Even now, India’s refining capacity exceeds its domestic consumption, indicating that this is not an opportune time to expand in this sector. It is certainly poetic justice that BPCL, which was formed from the erstwhile British Burmah Shell after it was nationalised, will return to the private sector from where it came originally.
The sale of Air India and BPCL in the current fiscal could help the government reach its target of Rs 2.1 lakh crore from disinvestment in 2020-21. But what is going to be of greater significance is the fact that the NDA government is finally proceeding with the long-awaited privatisation of public sector undertakings. One factor for the prolonged delay could be opposition by RSS-backed unions like the Bharatiya Mazdoor Sangh that have been staunchly against the privatisation plans. It seems, however, that finally the urgency of going ahead with much-needed economic reforms has taken precedence over political pressures trying to stall the process.