[‘Daily News Updates’ will provide you with a simplified understanding of the important economic/financial events across the country]
FDI Rules Changed to Aid BPCL Privatisation
Foreign direct investment (FDI) is when a foreign company or individual makes an investment in India that involves either
(i) establishing new business operations (known as green-field FDI) or
(ii) acquiring business assets, including controlling interests, in an already existing Indian company. (Known as brown-field FDI)
[Read- TYPES OF FOREIGN INVESTMENT- DECODED- FDI, FII, FPI AND QFI]
As per the Government’s FDI policy, 49 percent FDI is allowed in state-run oil and gas companies, like Bharat Petroleum Corporation (BPCL). Currently, the Government owns nearly 53 percent stake in BPCL and is looking to privatise the same.
[A public sector undertaking (PSU) is a firm that is owned by the Government, that is, the Government has a shareholding of more than 50 %.
Disinvestment is the selling of shares of the PSUs by the Government.
Disinvestment leads to privatisation only if the Government shareholding reduces to less than 51 %. This will transfer the control and management of the company from the Government to the private owners.
When shares are sold to the private sector, and the Government holding reduces below 51 %, it is known as strategic disinvestment or strategic stake sales]
[Read- GOVT. APPROVES STRATEGIC DISINVESTMENT IN 5 PSUS- EXPLAINED]
Today, the Government has approved a proposal to allow 100 percent FDI in state-run refineries. This will allow the Government to sell its stake to foreign investors. This is important since mostly foreign bidders have shown interest in BPCL. However, an official notification to give effect to this change is awaited.
Air India Privatisation- Updates
As per the Government, bids for Air India disinvestment will be received by September. What is the issue all about? [Read- Air India Privatisation- Why it should be done?]
In a previous article, we had explained the reasons which led to Air India’s mounting debt-
In 2004, after the UPA-I came to power, the aviation minister Praful Patel pushed for the modernisation of the fleet and acquired 111 aircraft at an expense of 70,000 crores. However, before this decision, no passenger survey was carried out. Both Air India and Indian Airlines lacked the infrastructure and manpower to operate these aircraft. A CAG report stated that in the period of 2007-2009, several aircraft were kept on the ground resulting in losses amounting to Rs 840 crores. An FIR by the CBI charged Praful Patel and unnamed officials with a lack of transparency in the entire acquisition process.
Following the 2004 mishap, another controversial decision followed in 2007. The Government decided to merge Air India (which controlled international operations) and Indian Airlines (which controlled domestic operations). The merger brought together close to 30,000 employees- 214 per plane. This was way above the global standard of 100 per plane. Thus, Air India had to spend close to 20% of its revenue on salary. Workforce integration was also woefully handled. There was no attempt made to standardise hiring processes. Service and promotion conditions remained different, and ground handling teams continued to operate separately.
What was the result of the merger then? In 2002-2003 (before the merger), the combined losses for Air India and Indian Airlines were Rs 63 crores. In 2010-11, it rose to nearly Rs. 7000 crores. In March 2020, the debt had risen close to Rs. 60,000 crores. It “has also come down to Rs 38,367 crore — from nearly Rs 60,000 crore in March 2020, due to transfer of over Rs 22,000 crore to Air India Assets Holding Limited.”
A previous attempt to divest 76% of its stake in Air India had failed in 2018 because the Government would have retained a significant influence on decision making (with 24 % of the stake). Since then, the Government has been trying to disinvest its entire stake in the airline, but COVID-induced lockdowns have led to inordinate delays. Finally, the Government has said that it will receive financial bids for the carrier in September.
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