Union Govt’s Divestment Plan for 176 CPSEs Stalled by Challenges

The policy of the Union government, which was introduced in the FY22 budget, to either privatize or shut down 176 central public sector undertakings (CPSEs) in “non-strategic sectors,” has hit a roadblock due to opposition from within the government and a seeming lack of commitment from top officials. According to official sources, it is unlikely that the situation will change before the general elections in May 2024.

Despite identifying over 60 companies in these sectors for disinvestment in the initial phases, little progress has been made apart from the steel sector. Some ministries, such as the Ministry of Chemicals & Fertilizers, have opposed the privatization of CPSEs under their purview, while others have shown disinterest in the plan by failing to take any administrative action, despite several companies under their supervision causing significant financial losses.

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DPE which stands for Department of Public Enterprises and Niti Aayog have identified 176 CPSEs in non-strategic sectors, with recommendations to wind up over 60% of them and privatize the remaining “viable units.” The Ministry of Fertilisers opposes the privatization of CPSEs under its jurisdiction, while other departments are reportedly failing to follow proper procedures before deciding on privatization or closure.

All nine CPSEs under the fertiliser ministry, such as National Fertilizers and Madras Fertilizers, were suggested for privatization. As India heavily relies on fertilizer imports, the government has been trying to increase domestic manufacturing, and these companies may be appealing to the private sector due to the captive market for their products. Privatizing these companies could have provided a boost to government capex in areas where private investments are unlikely, such as certain infrastructure sectors, healthcare, education, and skilling.

According to the source, there are several preparatory steps that need to be taken before closure proposals for CPSEs are presented to the Cabinet, such as the disposal of land, clearance of statutory dues, and auditing of accounts to determine losses and liabilities. Despite numerous consultations between ministries, several CPSEs have not conducted annual audits of their accounts.

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Similarly, the National Land Monetization Corporation (NLMC), which was meant to handle non-core assets such as CPSEs’ land, has not yet been fully established and lacks a CEO, even a year after Cabinet approval. Regarding the progress in the privatization of non-strategic units, the NINL steel plant located in Odisha, jointly owned by four central PSUs and two Odisha government PSUs, was privatized in January 2022 to the Tata Group for Rs 12,100 crore.

The strategic disinvestment of NMDC Steel is expected to be completed in the first half of the current fiscal year. It could bring the government approximately Rs 11,000 crore for its 50.79% stake sale. The Budget for FY22 introduced the strategic sector policy, which mandates that the government has a minimal presence in four broad sectors, with the remaining sectors being open to privatization, merger, or closure. Furthermore, the non-strategic sector requires all CPSEs to be privatized or closed if privatization is not feasible.

According to officials, the process of privatization and closure is expected to speed up after 2024 as the government is currently focused on the upcoming state and general elections.