India’s debt-laden flagship national carrier Air India is to be privatised by the end of next year, the country’s Finance Minister Nirmala Sitharaman announced this week. Prime Minister Nahrendra Modi’s government is also planning to sell off 12 other companies, including the Life Insurance Company of India (LIC), Bharat Petroleum and two banks which are as yet unnamed but strongly rumoured to be the Bank of Baroda (BoB) and the Punjab National Bank (PNB)>
Their divestment could be the precursor to an even more extensive transfer of state-owned enterprises to the private sector, Ms Sithraman suggested, to allow the government concentrates its efforts on the nuclear energy, space, security, communication and core parts of the financial sector which it sees as critical to national security. “The government is planning for a significant policy change,” she said. “We say that it should not fully own the business sector.” She also promised that any companies that were too economically viable to attract a buyer would be closed down.
Despite running up debts of more than $5bn, Air India’s future would appear to be safe, however, as both the Tata Group and the Kolkotta-based Ruia Group chairman ‘turnaround tycoon’ Pawan Ruia have lodged expressions of interest. The government had planned to privatize the airline by January, but was forced to postpone the sale due to COVID-19.
It is, in fact, the ravages wrought by the pandemic that has instilled a sense of urgency into the government’s decision to press ahead with its politically sensitive privatisation programme and it will be hoping to be able to raise around $16bn of the $24bn it needs to fill a hole in its own finances from the sale of LIC and Bharat Petroleum alone.
Although Sitharaman declined to name the two banks that will join them on the privatisation list, the balance sheets of both the Bank of Baroda and the Punjab National Bank have recently been swollen by mergers with smaller state-owned banks; and it is probably no coincidence that their share prices rose by 8.6% and 7% immediately after the Finance Minister’s announcement.
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