Rebooting disinvestment

Rebooting disinvestment

To gain some perspective on the Centre’s decision to divest 25% of its stake in five public sector general insurers, consider these numbers. Last year, the gross premium income of four of these companies — New India Assurance, United India Insurance, Oriental Insurance and National Insurance — increased by over 12%. But their profits after tax fell by more than half from a year earlier, from Rs. 3,094 crore in 2014-15 to just Rs.1,499 crore in 2015-16. A closer scrutiny reveals that high underwriting losses, which increased 55% in the year, were largely responsible for profits falling at these firms even as revenues rose. National Insurance took the sharpest hit, with a 148% rise in underwriting losses. Public shareholding in these firms will lead to questions about such outliers in performance that haven’t been heard under the Centre’s present 100% ownership structure, at least in the public domain. This, as Finance Minister Arun Jaitley said in his Budget speech last year, would lead to greater transparency and accountability. It will also allow the firms, including General Insurance Corporation of India, to raise more capital from the markets instead of relying on taxpayer money alone. For instance, India’s Rs.1,500-crore nuclear liability insurance pool created by GIC with other insurers perhaps needs more muscle to create confidence among wary nuclear suppliers.
That it took 11 months for a Budget announcement to secure ‘in-principle’ Cabinet approval is symptomatic of the lethargy in the disinvestment programme. Prime Minister Narendra Modi had asserted early in his term — during his maiden official visit to the U.S. in 2014 — that government had no business being in business. Yet, it took two more years for the Cabinet to sign off on the first strategic sale (with transfer of ownership and control) under its watch, in the loss-making Bharat Pumps and Compressors. In December, it approved the sale of land with four sick public sector pharma firms with a plan to close two, and ‘explore the option’ of strategic sale for Hindustan Antibiotics and Bengal Chemicals. This month, stock exchanges were informed about a proposal to sell a 26% stake in heavy equipment-maker BEML to a strategic investor. The political economy window for such divestment is not unlimited. Even the Atal Bihari Vajpayee regime, which spearheaded the strategic sale of public sector firms engaged in businesses ranging from bread to phosphates, raised 84% of such revenue during its third and fourth years in office. Halfway through its term, it is time this government’s disinvestment plans gather steam.