India: Privatisation for Profit and Purpose
Between 2009 and 2016, the market value of India’s eight largest government-owned enterprises (also referred to as public sector undertakings or “PSUs”) declined by 33% at a time when India’s benchmark Nifty index increased by 9%. This divergence is driven largely by the productivity gap between government and privately-owned entities in India. The private sector has a critical role to play in India’s current journey to become a US$5tn economy within the next decade. While some of the required economic value creation will certainly be derived by the growth and incremental productivity increases of existing private sector companies in India, a significant portion will need to come from the c.12% of the economy that is currently generated by government-owned entities, the unlocking of value from which will require privatisation and restructuring.
Successfully privatising government-owned assets in India will require a shift in mindset away from the ad-hoc approach to privatisations that Indian governments (including the current government) have traditionally adopted. Instead, India will need a comprehensive and structured privatisation program that combines targeted selection and execution with a series of supporting policies and reforms that drive the competitiveness of the privatised assets and their industries as a whole, while addressing the demands of a growing number of stakeholders who are demanding that companies meet a wider purpose than only making money.
The first two years of the Modi-led government’s first term (2014-2019) are widely seen as having been insufficiently ambitious, given the size of the mandate secured, with slow execution. This time around, the government is aiming higher to create a quicker and lasting impact on India’s political, social and economic fabric through a series of big initiatives. This month’s Sign of the Times provides an outline of how the India’s privatisation programme can be one of these big initiatives and a key platform for the country’s growth, modernisation and development.