By Kushal Kumar Singh
Funds 2021-22 has been lauded by many as a step in the fitting path. It lays a powerful emphasis on infrastructure growth – financial and social. Realising this infrastructure plan would require important spend. With the financial system nonetheless reeling from the COVID-19 shock, the federal government has hinged its funding technique on the prime minister’s mantra – “the Authorities has no enterprise to be in enterprise”. The bold infrastructure growth plan rests on three pillars – monetisation, divestment, and public-private partnerships (PPPs).
Compete or exit: Amongst the three pillars, divestment of Public Sector Enterprises (PSEs) can be a big contributor to the success of the infrastructure plan. With strategic sale and disinvestment of PSEs, the federal government intends to attain the acknowledged goal of tapping private-sector effectivity in addition to skill to take a position. Current progress in PPP initiatives in sectors like airports, highways, and ports signifies investor urge for food, and strengthens the effectivity argument in favour of PSEs’ strategic sale. Additionally, over time, the federal government has ended up with quite a few companies which are both out of date in at this time’s context, unsustainable, or have a number of overlaps with different PSEs. The message is unequivocal for PSEs – compete or exit.
The Rs 1.75-trn query: The Centre has set a steep goal of Rs 1.75 trn for disinvestments and strategic sale for FY2021-22. Whereas the federal government’s intent is obvious and undeniably has robust benefit, the moot query is whether or not the goal is achievable in an financial system considerably impacted by COVID-19. In FY21, the disinvestment proceeds had been about Rs 310 billion, as towards a goal of Rs 2,100 billion, with COVID-19 arguably taking part in spoilsport. In FY20, the disinvestment receipts had been budgeted at Rs 1.05 trillion, however lower than half of this quantity may very well be realised. Going by the previous achievements vis-à-vis targets, the FY22 determine seems to be bold. Though COVID-19 did push again the Centre’s plan, it has afforded time to undertake the much-needed preparatory groundwork for these transactions, together with an train to determine monetisable property and a disinvestment pipeline.
Caveat emptor: In principle, the benefit of the thought, preparatory work, and private-sector sentiment and momentum ought to result in beneficial outcomes. Nonetheless, some elements and structural points must be addressed to make sure realisation of the bold goal:
1) Cautious optimism is the important thing: Enough care should be taken to worth publicsector property or enterprises realistically. It’s crucial to undertake correct due diligence earlier than placing up such property on the market, and, extra so, depend upon the aggressive bidding course of.
2) Complementing but competing priorities: Monetisation of PSEs’ core and non-core property and PSEs’ strategic sale are complementing and competing priorities. In some circumstances, there have been initiatives to get rid of monetisable property whereas the disinvestment course of is underway. Such efforts are more likely to adversely influence the disinvestment/strategic sale potential.
3) Structuring elements: There was a lot speak about structuring divestment offers with particular provisions pertaining to worker safety, restriction on asset monetisation, and many others. Whereas constructing a sure stage of safety for numerous stakeholders is essential, this should be weighed towards the target of the strategic sale train, i.e. tapping private-sector effectivity and guaranteeing extra investments. That is particularly essential within the case of PSEs which are loss-making or out of date in at this time’s context.
4) Safety towards undiscovered liabilities and lawsuits: A mechanism is required for shielding towards undiscovered liabilities and taking applicable authorized or regulatory motion to make sure that investor confidence is sustained. This is able to additionally require a mechanism to fast-track the decision of any pre-deal and post-deal authorized motion.
The author is Companion, Deloitte India