Table of Contents
INTRODUCTION
- This chapter, examines the realized efficiency gains from privatization in the Indian context.
- It analyses the before-after performance of CPSEs that had undergone strategic disinvestment from 1999-2000 to 2003-04.
- The analysis clearly affirms that privatization unlocks the potential of CPSEs to create wealth.
- The chapter, therefore, bolsters the case for aggressive disinvestment of CPSEs.
BPCL VS HPCL
- In November, 2019, India launched its biggest privatization drive in more than a decade.
- An “in-principle” approval was accorded to reduce Government of India’s paid-up share capital below 51% in select CPSEs.
- Among the selected CPSEs, strategic disinvestment of Government’s shareholding of 53.29% in Bharat Petroleum Corporation Ltd (BPCL) was approved.
WHAT THIS MEANS?
- It translates into an increase in the value of shareholders’ equity of BPCL of around Rs.33,000
- The 33,000 crore increase translates into an unambiguous increase in the BPCL’s overall firm value, and thereby an increase in national wealth by the same amount.
STRATEGIC DISINVESTMENT
- It is guided by the basic economic principle that Government should discontinue its engagement in manufacturing goods and services in sectors where competitive markets have come of age.
- Such entities would most likely perform better in the private hands due to various factors.
- E.g. technology up-gradation and efficient management practices etc.
IMPACT OF PRIVATIZATION: A FIRM LEVEL ANALYSIS
- To assess the impact of strategic disinvestment/privatization on performance of select CPSEs before and after privatization,
- 11 CPSEs are studied, that had undergone strategic disinvestment from 1999-2000 to 2003-04.
- To enable careful comparison, these CPSEs have been compared with their peers in the same industry group.
- Further figure shows, the average performance of these CPSEs compared to their peers for ten years before and after the year of privatization..
- The analysis clearly affirms that disinvestment improves firm performance and overall productivity, and unlocks their potential to create wealth.
- This would have a multiplier effect on other sectors of the economy.
WAY FORWARD
- Aggressive disinvestment, preferably through the route of strategic sale, should be utilized to bring in-
- Higher profitability, Promote efficiency,
- Increase competitiveness and
- To promote professionalism in management in CPSEs.
- The aim of any disinvestment programme should, therefore, be the maximisation of the Government’s equity stake value.
- The Government can transfer its stake in the listed CPSEs to a separate corporate entity.
- This entity would be managed by an independent board and would be mandated to divest the Government stake in these CPSEs over a period of time.
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