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Privatisation: Will it materialize? - Views on News from Equitymaster
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  • Feb 28, 2001

    Privatisation: Will it materialize?

    The track record of the Government in mopping up the targeted disinvestment receipts has not been very encouraging. Like FY00, the current fiscal may also see only a single divesture by the Government.

    The bidding for Bharat Aluminium (Balco) has recently been completed with Sterlite Industries emerging as the winner. The proceeds from the disinvestment are expected to be Rs 7.8 bn. However, the opposition along with few allied parties has objected to the manner in which the proceeding was conducted. This has put the deal under jeopardy.

    Despite the continuing roadblocks and privatisation history the Government has set itself a higher disinvestment target of Rs 120 bn for FY02 as compared to Rs 100 bn in the current fiscal. The Government believes it can achieve this target as the privatisation procedure has been streamlined and the Department of Disinvestments (DoD) has been set up to accelerate the process. To achieve higher realizations from sale of stake the Government has amended its policy of divesting minority stakes. It now plans to divest in favour of a strategic investor relinquishing management control of the organisation. This could facilitate in raising higher proceeds from the disinvestment. Among the PSUs to be put on the block in the coming fiscal are Maruti Udyog, VSNL and Air India.

    The Finance Minister has indicated optimism in achieving next year's target of Rs 120 bn. The money raised will be allocated for plan and non-plan expenditure. Rs 70 bn will be utilized for restructuring PSUs, providing safety net to workers and reducing the debt burden. The additional amount will be allocated as budgetary support towards social and infrastructure sectors. However, allocation of the additional amount is subject to realization of receipts from the disinvestment process. Further, sectoral allocation will be decided at a later date along with the Planning Commission.

    The Government has also endeavored to restructure ailing PSUs. Since 1998, the Government has spent Rs 130 bn towards the business and financial restructuring of 23 viable or potentially viable PSUs. The Government has also made a start in taking harsh decisions. It will close down operations of 8 non-viable organizations. Restructuring of SAIL and HMT is also on the cards.

    The Government has set itself a stiff target considering the past performance. However, any move in the right direction will only aid in unlocking value of these behemoths, which will further assist the Government in reaching its target. A lot will depend on the outcome of the Balco disinvestment. Markets still need to be convinced of the conviction of the incumbent Government.



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