WORLD NEWS
India is set to embark on a comprehensive overhaul of more than 200 state-run firms to boost profitability and operational efficiency, according to government sources.
The move, expected to be unveiled during the annual budget presentation on July 23 by Finance Minister Nirmala Sitharaman, aims to leverage underutilised assets and large parcels of land owned by these firms. The goal is to raise $24 billion in the current fiscal year and reinvest these funds back into the companies, setting long-term performance targets over five years instead of short-term goals.
Government officials, speaking on condition of anonymity, revealed that the plan includes introducing succession planning in majority-owned companies and training 230,000 managers across firms to prepare them for senior roles. This initiative seeks to enhance the intrinsic value and competitiveness of state-owned enterprises (SOEs), aiming for increased autonomy and professional governance.
"The government's focus is shifting towards enhancing the intrinsic value of state-owned companies rather than pursuing indiscriminate asset sales," commented one official familiar with the deliberations.
India's initial privatisation plans, announced in 2021, faced setbacks amid political challenges and a reduced parliamentary majority after the recent general elections. The government managed to sell debt-ridden Air India to the Tata Group but rolled back plans for other significant sales, including Bharat Petroleum Corp, citing improved profitability.
Despite these setbacks, the market valuation of state-run firms has surged significantly, with the BSE PSU index tracking state-owned companies more than doubling in the past year. Analysts caution, however, that the current valuations may not always reflect underlying fundamentals, posing challenges for justifying high market caps through operational turnarounds.
While the government remains optimistic about its reform agenda translating into higher profits and dividends from SOEs, analysts suggest that India risks missing out on capitalising fully on the current bullish market sentiment towards state-owned entities.