Hurdles in Divestment of Private Sector Units

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 It has been a while since the current government showed the political courage to come forward and express vociferously the demand to push divestment. In the previous budget, Finance Minister Nirmala Sitharaman expressed the government's desire to have minimum to no presence in the nonstrategic sectors of the economy. It has since put forth the idea to reduce or completely withdraw the government's share in a number of private sector units. 

There is no doubt that most PSUs have been ailing from poor administration. The managers have been unable to deliver effectively. Apart from this, political and excessive interference, rampant corruption, and wasteful expenditure have led to massive losses and drainage of taxes. In this context, the divestment policy of the government is a forward-looking step and could revitalize these PSUs. However, there have been a number of issues with the divestment process.

If we look at the statistics the government so far has in this financial year has been able to only achieve 5% of its total divestment target of 1,75,000 crores. There could be a number of reasons for this - to begin with the COVID-19 pandemic, which has made it difficult to engage with potential investors. There have also been issues with regard to the valuation of the PSUs. As was seen in the case of Air India, there were issues related to lack of clarity on debt and assets which led to a delay in the sale. LIC, whose likely divestment has been pushed further to February, is expected to help achieve the major chunk of the divestment target due to its massive valuation of 12-15 Lakh Crore. 

It is clearly visible that there have been potholes encountered on the road to divestment. However, all is not gloomy. Air India's return to the TATA group and the expected listing of LIC has kept expectations buoyant. The divestment target in the next fiscal is also expected to be higher than this year. We can only be optimistic for a more coherent and strategic approach to the divestment challenge.

Source: The Mint

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