Change of Government holding in various Companies

In recent years, India has been at the forefront of the global movement towards disinvestment and privatisation. As the nation moves towards a more market-oriented economy, the debate on disinvestment and privatisation continues to garner attention and spark discussion. The Indian government has been actively reducing its holdings in public sector units to improve efficiency, promote competition, and generate revenue.

From selling iconic companies like Air India to transferring ownership in the banking sector, the change in government holdings has far-reaching implications. In this article, we will explore the Indian context of disinvestment and privatisation and shed light on its impact on the economy and the companies. Join us as we navigate through this important topic.

Reasons for Change of Government Holding

There are several reasons why the government may choose to change its holding in companies, including:

• The government may reduce its stake in companies to raise funds and reduce the fiscal deficit. Having a low fiscal deficit is advantageous for a country as it reduces inflation risk, makes the country more attractive to foreign investors and reduces the need for borrowing.
• The government may choose to transfer ownership of companies to private players to encourage private sector participation in key industries.
• The government may choose to transfer ownership of companies to private players to enhance the efficiency of Public Sector Enterprises (PSUs). By selling its stake in many PSUs, the government is encouraging increased private-sector participation.

Impact of Change in Government Holding

A change in government holding in companies can positively and negatively impact the economy. On the one hand, it can promote private-sector participation and enhance the efficiency of public-sector enterprises. On the other hand, it may result in job losses and reduced control over key industries.

Disinvestment and Privatisation: The Changing Landscape of Government Holding in Companies

The trend of disinvestment and privatisation has been growing globally, with governments looking to reduce their holdings in various companies worldwide. The primary aim of these policies is to raise capital, increase efficiency and promote private sector development. In this section, we will explore the concept of disinvestment and privatisation and their impact on various companies.

Disinvestment

Disinvestment refers to the process of reducing the government's holdings in public sector units (PSUs) by selling its shares to private companies or the public. Disinvestment aims to raise the government's capital and reduce its financial burden. In recent years, the Indian government has been at the forefront of this trend, disinvesting from several PSUs.

Implementation of Disinvestment

The process of disinvestment in India is carried out by the Department of Investment and Public Asset Management (DIPAM). The government may choose to divest its stake in a public sector enterprise through a public offering, strategic sale, or a combination of both.

In a public offering, the government offers shares of the public sector enterprise to the public. In contrast, in a strategic sale, the government sells its stake to a strategic buyer.

In recent years, the Indian government has been actively pursuing disinvestment to raise funds. In 2020-21, the government set a disinvestment target of Rs. 2.1 lakh crores, which it exceeded by over Rs. 40,000 crores. Some key disinvestment deals in recent years include the stake sale in Bharat Petroleum Corporation Limited (BPCL), Shipping Corporation of India, and Concor.

As per the financial year budget 2023 - 2024 document, the Government of India looks ahead to raising Rs 51,000 crore from stake sales in several state-run companies.

Data from the DIPAM website shows that proceeds from disinvestment stood at Rs 31,106.64 crore, only 48% of the budgeted amount of Rs 65,000 crore. However, the mop-up estimate for the ongoing fiscal has been revised to Rs 50,000 crore.

The budgeted disinvestment target has been missed in the current fiscal year, like in the past four years.

Impact of Disinvestment on PSUs 

The impact of disinvestment on PSUs has been mixed, with some companies seeing improvement in their financial performance and others facing difficulties. On the one hand, disinvestment has allowed PSUs to access capital and technology from private companies, which has led to increased efficiency and competitiveness. On the other hand, disinvestment has also resulted in a loss of control for the government, leading to a reduction in public services and increased privatisation.

Disinvestment Policy of Government of India (GOI)

There are two main components to India’s disinvestment policy:

a. Strategic Disinvestment: The government sells its entire or majority stake in a Central Public Sector Enterprise (CPSE) with the transfer of managerial control.

b. Minority Stake Sale: The government sells minority stakes in certain CPSEs without transferring management control. The sale takes place through SEBI-approved methods such as Initial Public Offerings (IPOs), Further Public Offer (FPO), Offers for Sale (OFS), and buybacks of shares.

Privatisation

Privatisation refers to the transfer of ownership of public assets from the government to private companies. This process can involve selling government-owned companies, transferring government services to the private sector, or outsourcing government functions to private companies. The objective of privatisation is to increase efficiency and reduce the financial burden on the government.

Some of the key privatisation initiatives in India in recent years include the sale of government-owned companies such as Air India, Bharat Petroleum Corporation Limited (BPCL) and Shipping Corporation of India (SCI). The government has also initiated the privatisation of several key sectors, including defence, railways and financial services.

Along with privatising IDBI Bank, the government is also attempting to privatise several CPSEs, including Shipping Corporation of India, NMDC Steel Ltd, BEML, HLL Lifecare, Container Corporation of India, and Vizag Steel. In various phases, many of these strategic sale processes are anticipated to be finished in the forthcoming fiscal year, which begins on April 1.

In September 2023, the Indian government is expected to conclude the sale of its first stake in IDBI Bank after delays stemming from regulatory clearances.

Impact of Privatisation on Companies and the Economy

The impact of privatisation on companies and the economy has been mixed. On the one hand, privatisation has led to increased efficiency, competition and investment, as private companies are more incentivised to improve performance and increase profits. On the other hand, privatisation has also resulted in reduced public services and increased income inequality, as private companies prioritise profit over public welfare.

The Bottom Line

Changing government holding in companies is a complex and sensitive issue with far-reaching economic implications. While it may bring about positive changes, such as promoting private sector participation and enhancing efficiency, it is important for the government to carefully consider the potential impact of such changes before implementing them.