Capitalising the strengths of Public Sector Undertakings and Banks in India.

India’s economic landscape has witnessed significant transformations over the years, and one of the critical policy shifts has been the privatisation of public sector enterprises (PSEs / PSBs ). India adopted a mixed economy model, establishing PSEs on a socialistic pattern of development. However, due to the poor performance of several PSEs and the resulting fiscal deficits, privatisation gained prominence.

India capitalised the opportunities in Public Sector  including .

Disinvestment: The government initiated disinvestment by selling off its equity in PSEs to mutual funds, financial institutions, and the private sector. This move aimed to enhance efficiency and reduce the burden on public finances.

Opening Closed Areas: Privatisation also involved opening up previously restricted sectors to private participation. This allowed for increased competition, innovation, and investment inflow. I am very happy , many of my recommendations on capitalising the opportunities offered by public sector were implemented by Government of India.

The recommendations which were implemented include :

1. Monetising the land Bank of public sector undertakings.

2. Monetising the operating Road assets / Airports.

3. Leasing out, the Port premises to private sector.

4. Improving the performance of public sector undertakings.

5. Realising the full market value of   listed  Stocks.

6. Using REITs/ INVITs as instruments raising  additional source of finance.

I am happy that a many of the strategies worked well and continue to give the desired results.

There is still large potential for capitalising the opportunities available in the public sector.

There is a debate on whether to go for a Massive privatisation and various strategies to be adopted for privatisation. Still many of the large PSUs in many sectors continue to do well and apart from good performance they are also able to meet the social and government objectives. Without going for a privatisation in a big way, it would be possible to tap the opportunities.

There are alternatives which can substitute, a planned privatization assist strategy. Few options are :

1. Like in the private sector, the government can start selling the listed stocks in the secondary market, in small lots of 1 to 2%, going up to 5% in a year .

2. The market capitalisation of all the listed public sector units and banks, witnessed q share price in the last 3 years. In all the listed companies, government decides to sell 2% in a year, government can mobilize more than Rs.100000 crores through this route. If 5% is sold in the market, the funds mobilised in the secondary market, could go up to Rs.250000 crores.

3. Land monetization. Many of the public sector undertakings, still hold large tracks of land in Tier 1 Tier 2 Tier 3  and tier 4 cities . Examples are the leading banks, companies like BSNL s/ MTNL, Railways, Ports. Even 5% of the land of the land owned by the entities aur monetized every year, the fundus mobilised could be much higher than sale of listed stocks.

Overall,  apart from the above specific strategies, the following options also could be considered, for capitalising the opportunities in the public sector. These options were adopted by the Government in the past.

Minority Stake Sale: In this approach, the government sells a portion of its shares while continuing to hold the majority ownership. It allows the government to retain control while raising funds from the private sector. As discussed above, second market sale can help in selling minority stakes.

Strategic Disinvestment: Under this method, the government divests large stake, effectively relinquishing management control. It involves selling a significant portion of shares to private investors or other entities. This method is suitable for sectors where government has opened up the sectors to private Sector in a big way and has a insignificant presence in the sector. But, in many sectors today, still Government continues to be dominant in sectors including Transportation, Infrastructure, Mining, Oil & Gas, Power, etc.

Follow-On Public Offerings (FPO): FPOs involve issuing additional shares to the public. The government can reduce its stake by offering these new shares to investors through the stock market.

Qualified Institutional Placements (QIP): QIPs allow companies to raise capital by issuing shares to qualified institutional buyers. The government can participate in QIPs to reduce its shareholding.

Exchange-Traded Funds (ETFs): The government can create ETFs comprising shares of multiple public sector companies. By selling units of these ETFs, it indirectly reduces its stake in individual companies. Eg. Bharat ETF.

Strategic Alliances and Joint Ventures: Collaborating with private companies or foreign entities can lead to partial divestment. Joint ventures allow the government to share ownership with private partners.

Listing Unlisted PSUs: Some public sector undertakings (PSUs) are not listed on stock exchanges. As discussed above, they have very large land banks. Listing them would enable the government to sell shares to the public.

Sector-Specific Approaches: Tailoring disinvestment strategies based on the sector can be effective. For instance:

In the banking sector, the government can reduce its stake in public sector banks (PSBs) to meet regulatory norms, as seen with the recent efforts to comply with Sebi’s minimum public shareholding (MPS) requirements.

In other sectors (such as energy, infrastructure, and manufacturing), targeted disinvestment can unlock value and attract private investment.

Asset Monetization: Selling non-core assets held by PSUs can generate revenue. These assets may include land, real estate, or surplus properties. Apart from sale, the scope for leasing the extra land to private sector also can generate revenue.

Gradual Reduction: Rather than sudden divestment, a phased approach allows for market stability and investor confidence. The government can gradually reduce its stake over time. The option discussed above of secondary sale would help to achieve this objective.

Conclusion

In the last few years, Government of India was able to monetise several opportunities in the Public Sector and  tapping the opportunities discussed above will go a long way in improving the Fiscal position of India and achieving the goals set under Atma Nirbhar Bharat.