Economic Survey takes a cue from Temasek to push disinvestment

By Ankit Doshi

  • 31 Jan 2020
Credit: 123RF.com

The Indian government should weigh the possibility of creating a corporate entity akin to Singapore state investment firm Temasek Holdings to hold and divest its stake in state-run companies, the Economic Survey has suggested.

The survey, prepared by chief economic adviser Krishnamurthy Subramanian, said this step would lend professionalism and autonomy to the government’s disinvestment programme and improve the economic performance of the state-run companies.

The government can transfer its stake in the listed public-sector companies to a separate corporate entity. This entity would be managed by an independent board and would be mandated to divest the government’s stake in these companies over a period of time, the survey said under the chapter on Privatization and Wealth Creation.

The survey advised the government for an aggressive disinvestment programme, with strategic sale as the preferred route to increase profitability, efficiency, competitiveness of such state-run companies by inducting professional management to run such companies.

In India, there are roughly 264 state-run firms falling under 38 different ministries or departments. Of these, 13 ministries have around 10 CPSEs each under its jurisdiction.

The centre should exit non-strategic businesses and optimize the economic potential of state-run firms and unlock the capital for use in the development of public infrastructures like roads, power transmission lines, sewage systems, irrigation systems, railways, and urban infrastructure.

Data shows that disinvestment has not benefited investors with superior returns in the past. From 2014-19, CPSEs have yielded an average return of just 4% as per the BSE CPSE index against an average 38% returns yielded by the Sensex in the same period.

Of the Rs 1.05 lakh crore targeted through disinvestment in fiscal 2020, the government has so far raised Rs 18,094.59 crore.

“The aim of any privatization or disinvestment programme should, therefore, be the maximization of the government’s equity stake value. The learning from the experience of Temasek Holdings company in Singapore may be useful in this context,” the survey added. 

It emphasized that in Temasek’s 45 years of operations, the investment firm has yielded annualised return of 15% in Singapore dollars to its investor on a compounded basis.

The firm’s net portfolio was worth $230 billion at the end of March 2019, a four-fold increase in value compared with $66 billion in 2004.

Temasek was incorporated in June 1974 as a private commercial company to hold and manage its investments in its government-linked companies (GLCs). The investment firm, which is wholly-owned by the Ministry for Finance and operates under the provisions of the Singapore Companies Act, has 13 members on its board who are mostly non-executive and independent business leaders from the private sector.

From managing investments, Temasek expanded its operations to cover key businesses in sectors such as telecommunications, media, financial services, energy, infrastructure, engineering, pharmaceuticals, and the bio-sciences.

The survey further added that Temasek’s original investment as national treasures and attempted to draw parallels with state-run companies granted nav-ratna (nine jewels), mini-ratna (small jewels), and maha-ratna (big jewels) status. Ratna literally means or translates to jewel.

In March 2002, Temasek began diversifying its portfolio outside of Singapore such that a third of its investments are in developed markets, a third in developing countries and a third in Singapore.