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India’s approach to managing its state-owned enterprises has taken a notable turn. For years, the government’s strategy was characterised by aggressive privatisation, aiming to offload large segments of its more than Rs 50 lakh crore state sector.
Representative Picture (IANS)
India’s approach to managing its state-owned enterprises has taken a notable turn. For years, the government’s strategy was characterised by aggressive privatisation, aiming to offload large segments of its more than Rs 50 lakh crore state sector. However, the plan has encountered significant hurdles, prompting a strategic pivot. The new focus is on enhancing the value and profitability of these enterprises rather than selling them off. This shift not only reflects a pragmatic response to current political and economic realities but also signals a longer-term vision for sustainable growth and development. The initial privatisation drive, announced in 2021, was ambitious but faced considerable resistance, culminating in limited success.
The sale of debt-ridden Air India was a notable achievement, yet many other planned sales were either rolled back or stalled. Political dynamics, especially Prime Minister Narendra Modi’s numbers in Parliament, have further complicated these efforts. In the face of these challenges, the government is now emphasising unlocking value and improving performance within these public sector enterprises (PSUs). Central to the new strategy is a comprehensive overhaul of more than 200 state-run firms. This includes selling large parcels of underutilised land and monetizing other assets to raise substantial funds. The government aims to reinvest these funds into the companies, setting five-year performance and production targets rather than short-term goals.
This approach not only fosters long-term stability but also aims to enhance the intrinsic value of these enterprises. One of the critical aspects of this shift is the introduction of succession planning and professional development within these companies. The government plans to train 230,000 managers for senior roles, aiming to professionalise management and improve corporate governance. By fostering a culture of high performance and accountability, the government hopes to make these companies more competitive and profitable. The market’s response to these reforms has been notably positive. The valuation of state-run firms has surged, reflecting investor confidence in the government’s new approach. However, some analysts caution that the current valuations may be overly optimistic, requiring substantial operational and financial turnarounds to justify. Nonetheless, the government’s focus on enhancing the intrinsic value and profitability of these enterprises appears well-founded.
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Higher dividends from state-owned firms are also expected, with projections surpassing earlier estimates. This not only provides a significant revenue stream for the government but also aligns with its goal of maximising returns from its investments. The plan to sell minority stakes while maintaining majority control further underscores this strategic intent, allowing the government to benefit from booming market valuations without relinquishing control. This strategic pivot from privatisation to enhancing PSUs represents a nuanced approach to economic management. It acknowledges the limitations and challenges of outright privatisation while leveraging the potential for value creation within the state sector. By focusing on long-term performance, professional management, and strategic asset monetisation, the government aims to transform these enterprises into robust contributors to India’s economic growth.
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