Economic Survey 2020: Temasek-Like Structure Proposed To Speed Up Disinvestment

The Economic Survey, released by the Chief Economic Adviser’s office a day ahead of the Union Budget, has proposed a new structure of disinvestment to maximise returns from public sector enterprises.

The survey suggests that the government take a leaf out of Singapore’s Temasek model and transfer its holdings in central public sector enterprises to a separate corporate entity, which would be managed by an independent board. This entity can then continue to divest individual units at appropriate points in time.

The aim of any privatisation or disinvestment programme should be the maximisation of the government’s equity stake value, the Economic Survey for 2019-20 said while proposing the new structure.

According to data provided by the Economic Survey, there are about 264 CPSEs under 38 different ministries and departments. Of these, 13 ministries have around 10 CPSEs each under its jurisdiction.

Many of these are profitable enterprises but do not generate the kind of returns that private firms do. “CPSEs have generally underperformed the market as is evident from the average return of only 4 percent of BSE CPSE Index against the 38 percent return of BSE SENSEX during the period 2014-2019,” the Survey said.

It added that CPSEs tend to perform better after privatisation.

A comparative analysis of the before-and-after performance of eleven CPSEs, that had undergone strategic disinvestment from 1999-2000 to 2003-04, showed that net worth, net profit, return on assets, return on equity and most other performance indicators improved significantly in the post privatisation period.

The analysis clearly affirms that disinvestment (through the strategic sale) of CPSEs unlocks their potential of these enterprises to create wealth evinced by the improved performance after privatisation, said the survey, while recommending that aggressive disinvestment be pursued.