News that the NITI Aayog has advised the NDA government to go for an aggressive round of disinvestment in public sector undertakings is more significant for its timing than its intent. The panel in a report to the PMO is said to have sought the winding up of 26 public sector companies, leasing out of loss-making hotels and revival-linked strategic stake sales in the perennially troubled Air India and 21 other companies. The advisory panel wants the government to let go off management control in companies where state stakes are already at 60% or below.
The NDA, even under a more mellow Atal Behari Vajpayee, had shown the political will to privatise companies such as the former VSNL and Balco. There is ground to believe Prime Minister Narendra Modi can boldly carry the torch forward, but problems are bound to crop up. Air India is a mess because at various points, bureaucrats, pilots, sundry staff and politicians have milked the airline, irking taxpayers and passengers alike. It would require extraordinary courage and creativity to find a suitable partner for the iconic Maharaja. The government also has to resolve lingering issues over whether India needs a “national carrier” to ferry VIPs and get engaged in emergency evacuation for its citizens like India did after the invasion of Kuwait by Iraq in 1990.
In general, the atmosphere for disinvestment is more benign than it has been in nearly a decade. India is the world’s fastest growing major economy and global investors, sovereign wealth funds and would-be partners appear keen to buy into the India Story. If inflation is reined in and monsoon rains are bountiful as forecast, we may be looking at higher investor appetite because the government has already undertaken key market-friendly policy measures. However, the public sector is a minefield in which every company may have its own peculiar issues such as obstacles to revival, trade union protests, public interest litigation to check divestment and location-based carping by Opposition-ruled state governments. Also, India’s banks are still licking the wounds of a global downturn that started in 2008. Market appetite kindled by policy reforms is not enough. Strong investor demand needs easier cash flows and growth opportunities for stake buyers to bet on. Banking reform must, therefore, precede divestment measures in the interests of pragmatism. What Mr Modi and Union finance minister Arun Jaitley need are administrators with a sense of detail who can give teeth to the intent of the NITI Aayog.