Budget 2016: Putting NITI at the helm shows Modi is indeed firm on privatisation

For those despairing of any serious action by this government on the privatisation of public sector undertakings (this writer has been one of them), here is some good news. A cabinet meeting today gave the green signal to a proposal that gives a central role to the Niti Aayog in the process of strategic sales. The Aayog will identify which PSUs should be taken up for privatisation, advise the government on the percentage of shares to be disinvested, the mode and suggest methods for valuation.

Union Finance Minister Arun Jaitley. PIB

Union Finance Minister Arun Jaitley. PIB

This is part of a proposal relating to procedures and mechanisms for strategic disinvestment set out by the department of investment and public asset management (DIPAM), the new name for the department of disinvestment. Under the new system, once the cabinet committee on investment approves a strategic disinvestment proposal, a core group of secretaries on disinvestment, headed by the cabinet secretary, will oversee the process of implementation. The administrative ministry in charge of a PSU will appoint asset valuation advisors and an inter-ministerial evaluation committee will fix the reserve price based on this valuation. The government will also appoint an independent external monitor to vet the process and settle grievances, a press release from the finance ministry said.

There had been news reports last year about the government setting up a disinvestment commission to speed up the whole process, but there was no official announcement and nothing was heard about it. The government has now chosen Niti Aayog for the task.

The Niti Aayog’s role is similar to the two Disinvestment Commissions that had been set up earlier – first during the United Front government and later during the first National Democratic Alliance government. The first Commission, headed by G. V. Ramakrishna, had paved the way for strategic sales but nothing had happened because that government was short-lived and, in any case, there was strong resistance from the left which was part of the government. The NDA-1 government set up a separate ministry of disinvestment, first headed by Arun Jaitely and later by Arun Shourie. That government set up another Commission headed by R. H. Patil. It did manage to privatise several PSUs.

Former disinvestment secretary Pradip Baijal, who partnered Shourie in implementing the privatisation programme between 2000 and 2004, believes the government has been extremely shrewd in giving positive development. The earlier Disinvestment Commissions, he points out, were outside the government and its recommendations could be blocked by government ministries and departments. Chances of that will be minimised by getting the Niti Aayog, which is part of the government system to do what earlier Disinvestment Commissions were doing.

This gives some hope that the government will be able to get at least the Rs 20,500 crores that it has planned through strategic disinvestment. This is part of the overall Rs 56,500 crores disinvestment target. Piecemeal divesting of shares falls prey to stock market conditions (one reason why the disinvestment receipts of Rs 25,312 crore in 2015-16 was less than 40 per cent of the budgeted Rs 69,500 crore). Strategic sales also get more value for the company.

But will giving the Niti Aayog a central role in strategic sales end all resistance to privatisation within the government? It may not, concedes Baijal. Individual ministries could still oppose giving up control over PSUs they manage; there is a lot of rent seeking that happens with PSUs. Every individual case of privatisation was a huge battle for both Shourie and him. Even if administrative ministries did not openly oppose privatisation, they would create numerous hurdles in the process.

Perhaps that is why the setting up of the new core group of secretaries under the cabinet secretary is important. Driven by a clear mandate from the very top, it will be hard for bureaucrats to create unnecessary hurdles.

What needs to be seen now is how the Niti Aayog will go about identifying PSUs for privatisation? Will it wait for the government to refer cases to it? Will it take up cases suo motu? Will it follow the Fourteenth Finance Commission’s suggested categorisation of PSUs as being in high priority, priority, low priority and non priority? All eyes on Niti Aayog now.

Updated Date: Mar 02, 2016 08:28 AM

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