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Covid-19| Born again PSU policy may usher in a consolidation spree

As of 2018-19, there were 248 operational public sector undertakings (PSUs) in India. Seventy of these were loss making, posting a combined net loss of Rs 31,635.30 crore in the year

May 19, 2020 / 12:43 AM IST

Finance minister Nirmala Sitharaman on May 17 pitched the need for a "new coherent policy—where all sectors are open to the private sector while public sector enterprises (PSEs) will play an important role in defined areas."

This could well mark a point of inflection in India’s public sector landscape, from the “commanding heights of the economy” to being forced to make way for the private sector in areas that they have dominated for decades without competition.

India’s central public sector universe resembles the long tail of an extended arm chair: a small group of efficiently run enterprises that stand shoulder-to-shoulder with global peers, followed by a concentration of loss-making ones that has been surviving for years on government cash life support.

Sample this. As of 2018-19, there were 248 operational public sector undertakings (PSUs) in India. Seventy of these were loss making, posting a combined net loss of Rs 31,635.30 crore in the year. These include the two state-owned telecommunication enterprises—Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL)—that have since been decided to merge into a single entity.

The loss making chart includes Air India, a maharaja whose privy purse seems to have lasted too long. Once considered the nation's pride, Air India (AI), symoblised by its mascot maharaja, is up in the air.

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As its planes criss-cross across the globe to cart Indians stranded by Covid-19, an old question loomed larger than before: should the airline be given more cash as oxygen or hived off to private hands in a sunset plan?

The finance minister’s plan does not hold any clues.

The new policy will list out strategic sectors requiring presence of PSEs in public interest, where “at least one enterprise will remain in the public sector but private sector will also be allowed”.

In other sectors, PSEs will be privatised, and the number of enterprises in strategic sectors will ordinarily be only one to four; “others will be privatized/ merged/ brought under holding companies”.

Air India falls into the previous category, and being the only one of its kind, it may well mean that Maharaja’s privatisation plan, which has failed to take off last year, may be aborted for the time being.

The finance minister said that the blue-print will be announced soon. The initial indications suggest that the move will trigger a spate consolidations in a range of sectors—from banks to financial services to construction.

An example can be illustrative. There are as many as 44 companies in “Contract & Construction and Technical Consultancy Services” category, that includes nine loss making ventures as of 2018-19. These includes companies such as Engineering Projects (India) Ltd, HLL Mother and Child Care Hospitals Ltd, Ircon PB Tollway Ltd, Ircon Shivpuri Guna Tollway Ltd, National Small Industries Corporation, NBCC Engineering and Consultancy Ltd, TCIL Bina Toll Road, and TCIL Lakhnadone Toll Road Ltd.

Will all of these be merged into a single entity, privatised or downright shuttered down? No one the answers yet.

Likewise, there are 20 companies under the broad “Financial Services” head that included 14 profit making such as Balmer Lawrie Investment, IIFCL Asset Management Company and Indian Railway Finance Corporation among others to loss making companies such as Eastern Investments Ltd.

The government’s plan could well mean most of these could be consolidated into fewer entities. The catch is many of these would have been created an Act of Parliament and, therefore, amalgamating them will require the Parliament’s ratification.

Likewise, will the new plan for public sector plan usher in spate of fresh round of consolidation in India’s government-owned banking space?

Gaurav Choudhury
Gaurav Choudhury
first published: May 17, 2020 10:39 pm