The Centre is reportedly set to revamp over 200 state-run firms, aiming to enhance their profitability, signaling a shift from its privatization plan, which has struggled to gain momentum.
A Reuters report claimed the plan, which will be part of the Union Budget slated for July 23, will include selling large parcels of underutilized land owned by companies and monetizing other assets. The goal is to raise $24 billion in the current fiscal year (April-March) and reinvest the funds into the companies, while setting five-year performance and production targets for each firm.
The report further claimed that with this move, the government aimed to shift focus from indiscriminate asset sales to enhancing the intrinsic value of state-owned companies. Among the proposed measures are succession planning in majority-owned companies and training 230,000 managers for senior roles, along with professional recruitment to company boards and performance incentives, expected to roll out in the 2025/26 fiscal year.
The privatization plan announced in 2021 included the sale of two banks, one insurance company, and firms in the steel, energy, and pharmaceutical sectors, alongside the closure of loss-making companies.
However, progress has been limited, with only the sale of debt-ridden Air India to the Tata Group completed and partial stakes sold in other companies, including a 3.5% stake in LIC.
Recently, Oil Minister Hardeep Puri stated that the plan to sell Bharat Petroleum Corp (BPCL.NS) was no longer viable due to the company's substantial annual profits.
The privatization efforts have been criticized as "selling family silver" at low prices, and Modi's reduced majority in parliament has made these sales more challenging.
Despite these hurdles, the market valuation of state-run firms has more than doubled in the past year, driven by hopes of sector reforms. The BSE PSU index, which tracks state-owned companies, has surged over 100%, outperforming the benchmark BSE Index's 22% rise. Analysts, however, caution that the valuations of many PSU stocks appear unrealistic given their fundamentals, and substantial operational improvements would be necessary to justify current market caps.
The government views the market's response as a sign of investor confidence and expects the reforms to lead to higher profits and increased returns for the state. State firms are projected to pay significantly higher dividends to the government, compared to earlier estimates of $5.8 billion for 2024/25. Nonetheless, analysts warn that India risks missing out on the opportunity to capitalize on the booming valuations of state companies.
According to CareEdge Ratings, the government could raise approximately $137.75 billion by selling minority stakes in state-owned companies while maintaining a 51% stake. "The end of the election season, coupled with the stock market near all-time highs, offers an ideal moment to advance significant divestment initiatives," Rajani Sinha, Chief Economist at CareEdge Ratings, was quoted as saying in the report.