Union Finance Minister Nirmala Sitharaman on Sunday announced major reforms for Public Sector Undertakings (PSU), as a result of which many sectors are likely to see large-scale consolidation and divestment of State-run firms.
According to Sitharaman, the government will soon announce a new PSU policy, which will focus on privatising PSUs in non-strategic sectors based on feasibility. The policy will, in parallel, specify certain strategic sectors in which the “presence of PSEs in public interest” will be mandatory.
“In strategic sectors, at least one enterprise will remain in the public sector, but private sector will also be allowed. In other sectors, PSEs will be privatised (timing to be based on feasibility etc),” said the finance ministry. It also added that in order to minimise wasteful administrative costs, the “number of enterprises in strategic sectors will ordinarily be only one to four; others will be privatised (or) merged (or) brought under holding companies”.
The announcement was part of the final tranche of announcements in the Atma Nirbhar Bharat Abhiyan stimulus package, which the government claims will provide stimulus worth around 10 per cent of GDP.
The FM said there was a need for a “coherent policy, because sometimes you open up some sectors piecemeal. Now we shall define these areas… where PSU presence will be impactfully felt”.
Analysts say that the move is a welcome announcement, because it will open up certain markets to more private competition and consolidate the sprawling network of numerous PSUs. But, how soon such an initiative can be mobilised will play a role in its effectiveness. “If this bold announcement is quickly transmitted into action, then it could unlock a lot of value,” said Dhiraj Relli, MD & CEO, HDFC Securities.
Sumit Khanna, partner, Deloitte India, also noted that the identification and notification of strategic sectors with limited PSU representation “puts definition to the government’s privatisation strategy”.
While successful privatisation will result in an influx of funds into a cash-starved exchequer, analysts note that many PSUs may not attract sufficient investor interest due to the impact the pandemic has had on the economy.