India to herald leaner, efficient systems to boost ease of doing business

NITI Aayog, the Government of India’s official think tank, wants to do away with the present seven-layer decision making process for the sale of public sector companies. This will improve the ease of doing business and make it easier for investors wanting to bid for such firms.

In keeping with the Modi government's mantra of cutting red tape and easing bureaucratic controls over business, the Government of India's official think tank, NITI Aayog, has recommended doing away with the seven-layer approval process for privatisation of state-owned companies and replacing it with a leaner, more efficient system.

This is particularly significant as Indian Finance Minister Nirmala Sitharaman has targeted receipts of $23 billion from the strategic sale of public sector units (PSUs) as well as stake sales in state-owned companies.

It may be mentioned here that the government has consistently failed to meet its disinvestment targets almost every year. In the current financial year, it was mainly due to the lockdown and depressed market conditions through the first half of the fiscal.

Long drawn processes adds to poor track record

But the long drawn and multi-layered approval process for the sale of shares in PSUs is another major reason for this poor track record. “The market is very dynamic and moves every day. The underlying fundamentals behind an approval granted today may not be valid a few months later. The valuation can change quite significantly because of this time lag. Investors will not touch an issue if the valuation is no longer in line with fundamentals,” said a senior executive of a leading mutual fund.

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A senior official in the government said on condition of anonymity that the NITI Aayog recommendation is long overdue. “Foreign investors who may be keen to invest in India are often put off by the lengthy approval processes involved in the decision making process,” he said.

If these recommendations are approved by the government, it will go a long way in helping the Finance Minister meet her budgetary projections. The government, which is facing a revenue crunch because of the Covid-19 pandemic and very real fears of a renewed outbreak of coronavirus, will need to meet its disinvestment targets to maintain the sanctity of its fiscal math.

Government to exit non-strategic businesses

Then, in keeping with its promise to exit non-strategic businesses, the government has taken an in-principle decision to get out of all businesses except a few in 18 strategic sectors. Even here, the state will retain ownership and control of a minimum of one and a maximum of four companies and sell the rest.

No less a person than the Prime Minister himself has asserted that the “government has no business to be in business… Asset monetisation and privatisation decisions will help empower Indian citizens," he told a recent webinar organised by the Department of Investment and Public Asset Management (DIPAM).

It is significant that Sitharaman spoke of “privatisation” and “strategic sales” of public sector units in her latest Budget as opposed to the more politically acceptable disinvestment. Under the latter, the government sells stakes in PSUs, while retaining majority ownership and management control of the companies whose shares are being listed. But “privatisation” and “strategic sales” mean the sale of a majority sale as well as transfer of management control to the winning bidder.

NITI Aayog identifies PSUs for sale

The government has lined up several PSUs, which are considered “crown jewels”. The most prominent among them are loss making national carrier Air India and the country’s second-largest oil marketing company Bharat Petroleum Corporation Ltd (BPCL).

NITI Aayog, which has been entrusted with the task of identifying and creating a list of companies to be privatised, has shortlisted a few companies. According to media reports, these could include Container Corporation of India (Concor), Shipping Corporation of India (SCI), two unnamed banks, a general insurance company and a few others.

The government is also planning an offer for sale (OFS) of shares in India’s largest life insurer, Life Insurance Corporation (LIC) of India.

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Transparent, quick decision making

“We are very clear we want the process to be transparent but there should be no delay,” a source said.

Besides, the sales of companies, 12 different ministries and the NITI Aayog are also taking up the asset monetisation process, Tuhin Kanta Pandey, Secretary, DIPAM, told a private channel. This was also part of the proposals unveiled in Budget 2021.

Once accepted, the NITI Aayog proposal will facilitate the fast tracking of the decision making related to strategic sales of public sector units so that they can be placed before the Union Cabinet for final approval within a reasonable time frame.