Economic Survey 2020 pitches divestment in public sector undertakings

Economic Survey says public sector units performed better than peers after privatisation

The Economic Survey has aggressively pitched for divestment in public sector undertakings (PSUs) by proposing a separate corporate entity wherein the government’s stake can be transferred and divested over a period of time.

Further, the survey has said privatised entities have performed better than their peers in terms of net worth, profit, return on equity and sales, among others.

Independent board

“The government can transfer its stake in 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 in these CPSEs over a period of time,” stated the Economic Survey presented on Friday.

“This will lend professionalism and autonomy to the disinvestment programme which, in turn, would improve the economic performance of the CPSEs,” it added. The survey analysed the data of 11 PSUs that had been divested from 1999-2000 and 2003-04 and compared the data with their peers in the same industry.

“Analysis shows that these privatised CPSEs, on an average, performed better post-privatisation than their peers in terms of their net worth, net profit, return on assets (ROA), return on equity (RoE), gross revenue, net profit margin, sales growth and gross profit per employee,” the Survey said.

“More importantly, the ROA and net profit margin turned around from negative to positive, surpassing that of peer firms, which indicates that privatised CPSEs have been able to generate more wealth from the same resources... The analysis clearly affirms privatisation unlocks the potential of CPSEs to create wealth,” it added.

Interestingly, according to the government document, the recent approval of strategic disinvestment in Bharat Petroleum Corporation Limited (BPCL) led to an increase in value of shareholders’ equity of BPCL by ₹33,000 crore compared to its peer Hindustan Petroleum Corporation Limited.

“Aggressive disinvestment, preferably through the route of strategic sale, should be utilised to bring in higher profitability, promote efficiency, increase competitiveness and to promote professionalism in management in CPSEs,” stated the Survey.

“The focus of the strategic disinvestment needs to be to exit from non-strategic business and directed towards optimising economic potential of these CPSEs,” it added, highlighting there were about 264 CPSEs under 38 Ministries or departments.