Govt Took Short Cuts To Expand Privatisation Before Budget: Report

The policy approved by the Cabinet ahead of the Budget was far more ambitious than the first proposal in July 2020.

In a span of six months leading up to the Union Budget on 1 February 2021, the Ministry of Finance narrowed the criteria to retain ownership in public sector companies, added more sectors to the divestment list, and rolled back a proposal on minimum number of PSUs to be retained, a BloombergQuint investigative report stated.

In doing so, the team shepherding the policy also skipped over some of the processes laid down for inter-departmental consultations, thereby finalising it in time for Finance Minister Nirmala Sitharaman’s February Budget speech, the report stated.

BloombergQuint has accessed a series of communications through the Right To Information Act between the Finance Ministry’s Department of Investment and Public Asset Management and different ministries starting July 2020, which culminated in a Cabinet note dated 23 January.

The documents also show that the policy finally approved by the Cabinet, just ahead of the Budget announcement, was far more ambitious and wide-ranging than the proposal that was first circulated in July 2020.

The first part of BloomberQuint’s series ‘The Privatisation Files’ detailed the numerous objections raised by key ministries, in some cases backed by the Cabinet ministers themselves. In most cases, the objections and concerns were not accommodated with DIPAM providing a counter-rationale.

WHAT THE FINANCE MINISTRY DOCUMENTS REVEAL

The Finance Ministry’s Department of Investment and Public Enterprises framed a draft Cabinet Note on Economic Affairs, which was sent for consultation on 6 July 2020. The policy was then named as, ‘Redefine Public Sector Participation in Commercial Enterprises for a New Self-reliant India (REPUB-SPACE Policy)’.

Comments were sought from as many as 49 ministries/departments. A week before the Budget was to be presented on 1 February, DIPAM decided to convert the proposal, which was intended for the Cabinet Committee On Economic Affairs into a note for the approval of the Union Cabinet. The final policy was approved in a Cabinet meeting chaired by the Prime Minister on 27 January.

A study of the draft note prepared in July and the one approved in January suggests that somewhere along the way, the government decided to go ‘all-in’ on its attempt to privatise.

For instance, the July draft note had laid down very broad criteria on sectors that qualify as ‘strategic’. The result, a far wider set of sectors classified as ‘strategic’, potentially limiting the scope of privatisation.

Then came the January note, which went to the Cabinet. Here, the criteria for strategic sectors was more specific. “National security, energy security, critical infrastructure, provision of financial services, and availability of important minerals...” were listed as the criteria. Immediately, the list of strategic sectors whittled down.

BENDING THE RULEBOOK

The changes to the proposed privatisation policy between July and January were significant. Was it then incumbent upon DIPAM and the Finance Minsitry, which was driving the process, to consult other ministries a second time on the new privatisation policy?

The rule book says yes. However, DIPAM chose not to do this.

Official records reviewed by BloombergQuint show that DIPAM made a case, in a file noting dated January 23 2021, that the final note need not be circulated for inter-ministerial consultations again.

The department argued that the policy will only classify state-owned firms into strategic and non-strategic sectors. There will be multi-layered consultations that will happen at a later stage.

At the time of majority stake sale, ministries will be “duly consulted by Niti Aayog” and the ministry, which has administrative control over a particular company, will also be a member of a core group of departments so their views will be incorporated again, it said.

“In view of this, therefore, this note for the Cabinet may not be circulated for inter-ministerial consultation,” a correspondence from DIPAM to the Finance Minister’s office shows. “Approval of FM is sought on the draft note for the Cabinet and on para 4.4 (above proposal),” the DIPAM said in the file noting.

The finance ministry approval came within hours. The finance ministry official quoted above said that the final note did not have “substantial” changes so the need for another round of consultation was not felt. Since the Cabinet discussed the final note, ministers had an opportunity to express their concerns, this person said.