Privatisation pitch: BPCL’s short-term price rally not a convincing argument

An entire chapter in the Economic Survey 2019-2020 has been devoted to the virtues of privatisation of public sector enterprises in the pursuit of wealth creation. This is not surprising, given that large-scale divestments of central public sector enterprises (CPSEs) have become critical in the Centre’s attempts to raise resources and contain the fiscal deficit.

Not much progress has been seen on the Centre’s mega asset sale plans this year (just about ₹18,000 crore has been realised so far out of the planned ₹1.05 lakh crore in FY 2019-20). But a major thrust can be expected in the coming weeks and months.

The Survey – with an array of analyses, charts and graphs – makes a case for aggressive disinvestment of CPSEs. It analyses the before-after performance of 11 CPSEs that had undergone strategic disinvestment from 1999-2000 to 2003-04.

The study says that these privatized CPSEs have performed better post-privatisation than their peers on various financial parameters, and have been able to generate more wealth from the same resources. This, according to the survey, affirms that privatisation unlocks the potential of CPSEs to create wealth.

The list of entities analysed include Hindustan Zinc, BALCO, CMC, Maruti Suzuki, IPCL, Tata Communications, Lagan Engineering, Jessop & Co, Modern Food India, Hindustan Teleprinters and Paradeep Phospates.

Interestingly, to make its case for privatisation of CPSEs, the Economic Survey also highlights the run-up in the share price of PSU oil marketer BPCL since September 2019 when news about the Centre’s impending strategic disinvestment in the company started doing the rounds. The Survey contrasts the BPCL stock’s rally with the relatively constrained performance of peer HPCL.

The BPCL stock’s superior performance, the Survey says, reflects an increase in the overall value from anticipated gains from consequent improvements in the efficiency of BPCL when compared to HPCL which will continue to be under the Government control.

The Hindu Businessline
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