Economic Survey: Why it underlines wealth creation, PSU strategic sale
A KEY THEME the Economic Survey emphasises across chapters is the importance of wealth creation which, it says, is better achieved through liberalisation of the economy and promotion of the private sector. It highlights several areas from banking to cement and steel where opening up the sectors to private players has led to massive efficiency gains, increased profitability, improved return on assets, and better access and service to customers.
On disinvestment, an analysis carried out in the survey shows that strategic sale of majority stake to private players produced much better results, indicating its preference for privatisation of government-owned companies. It argues for the setting up of a holding company structure — on the lines of Singapore government-owned Temasek Holdings — to carry out stake sale in central public sector enterprises (CPSEs).
“The aim of any privatisation or disinvestment programme should, therefore, be maximisation of the government’s equity stake value.The government can transfer its stake in the listed CPSEs to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government stake over a period of time,” it said. This would help unlock value in 264 CPSEs.
In the case of state-owned banks, while the Survey does not advocate privatisation, it suggests granting stock options to bank employees, on the lines of private banks, to motivate them, as well as better use of data analytics and fintech platforms to improve bank productivity.
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Quoting extensively from Kautilya’s Arthashastra, Adam Smith’s the Wealth of the Nations, Tamil saint Thiruvalluvar’s Thirukural – along with evidence-based analysis – many chapters in the Survey stress the need for wealth creation and greater participation of the private sector to achieve this objective. It cites sector after sector – cement, steel, roads, ports, banking and mutual funds – where entry of the private sector led to exponential gains, especially when compared with sectors which remained under government control – such as railways, coal, PSU banks – which faired poorly over the years.
“India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets. The invisible hand needs to be strengthened by promoting pro-business policies. eliminate policies that undermine markets through government intervention even where it is not necessary,” the Survey said. Invisible hand was a concept advocated by economist Smith who argued that private players working in their self interest produce favourable economic results.
Another analysis in the Survey highlights the gains achieved from strategic sales between 1999-2000 to 2003-04 in key companies that were privatised, Balco, Maruti, Hindustan Zinc, Tata Communications, Modern Food India, among others.
A comparative analysis of the before-after performance of 11 CPSEs that went through strategic disinvestment reveals that net worth, net profit, return on assets, return on equity, gross revenue, net profit margin, sales growth and gross profit peremployee of the privatised CPSEs, on an average, have improved significantly in the post privatization period compared to the peer firms, it said. “The ROA and net profit margin turned around from negative to positive surpassing that of the peer firms which indicates that privatised CPSEs have been able to generate more wealth from the same resources,” the Survey stressed. The analysis clearly affirms that disinvestment (through the strategic sale) of CPSEs unlocks the potential of these enterprises to create wealth evinced by the improved performance after privatisation, it said.
The Survey also highlights the case of Bharat Petroleum Corporation Limited (BPCL) where the announcement of privatisation itself led to an increase in shareholder value by Rs 33,000 crore compared to its peer Hindustan Petroleum Corporation Limited, in which the government sold its entire stake to another state-owned player ONGC. HPCL shares have remained largely flat with no privatisation, while BPCL stock almost doubled in value just on announcement.
On disinvestment, an analysis carried out in the survey shows that strategic sale of majority stake to private players produced much better results, indicating its preference for privatisation of government-owned companies. It argues for the setting up of a holding company structure — on the lines of Singapore government-owned Temasek Holdings — to carry out stake sale in central public sector enterprises (CPSEs).
“The aim of any privatisation or disinvestment programme should, therefore, be maximisation of the government’s equity stake value.The government can transfer its stake in the listed CPSEs to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government stake over a period of time,” it said. This would help unlock value in 264 CPSEs.
In the case of state-owned banks, while the Survey does not advocate privatisation, it suggests granting stock options to bank employees, on the lines of private banks, to motivate them, as well as better use of data analytics and fintech platforms to improve bank productivity.
Also Read
Save money on your health care + your taxes. Find out how!
Save money on your health care + your taxes. Find out how!
Sponsored by Bajaj Allianz
Quoting extensively from Kautilya’s Arthashastra, Adam Smith’s the Wealth of the Nations, Tamil saint Thiruvalluvar’s Thirukural – along with evidence-based analysis – many chapters in the Survey stress the need for wealth creation and greater participation of the private sector to achieve this objective. It cites sector after sector – cement, steel, roads, ports, banking and mutual funds – where entry of the private sector led to exponential gains, especially when compared with sectors which remained under government control – such as railways, coal, PSU banks – which faired poorly over the years.
“India’s aspiration to become a $5 trillion economy depends critically on strengthening the invisible hand of markets together with the hand of trust that can support markets. The invisible hand needs to be strengthened by promoting pro-business policies. eliminate policies that undermine markets through government intervention even where it is not necessary,” the Survey said. Invisible hand was a concept advocated by economist Smith who argued that private players working in their self interest produce favourable economic results.
Another analysis in the Survey highlights the gains achieved from strategic sales between 1999-2000 to 2003-04 in key companies that were privatised, Balco, Maruti, Hindustan Zinc, Tata Communications, Modern Food India, among others.
A comparative analysis of the before-after performance of 11 CPSEs that went through strategic disinvestment reveals that net worth, net profit, return on assets, return on equity, gross revenue, net profit margin, sales growth and gross profit peremployee of the privatised CPSEs, on an average, have improved significantly in the post privatization period compared to the peer firms, it said. “The ROA and net profit margin turned around from negative to positive surpassing that of the peer firms which indicates that privatised CPSEs have been able to generate more wealth from the same resources,” the Survey stressed. The analysis clearly affirms that disinvestment (through the strategic sale) of CPSEs unlocks the potential of these enterprises to create wealth evinced by the improved performance after privatisation, it said.
The Survey also highlights the case of Bharat Petroleum Corporation Limited (BPCL) where the announcement of privatisation itself led to an increase in shareholder value by Rs 33,000 crore compared to its peer Hindustan Petroleum Corporation Limited, in which the government sold its entire stake to another state-owned player ONGC. HPCL shares have remained largely flat with no privatisation, while BPCL stock almost doubled in value just on announcement.
URL:https://indianexpress.com/article/business/economic-survey-why-it-underlines-wealth-creation-psu-strategic-sale-6245145/
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