The government is in the process of identifying central public sector undertakings (CPSUs) in both strategic and non-strategic sectors for privatisation in the current financial year. At the forefront are CPSUs of the non-strategic sector, followed by the strategic sector with an aim of bare minimum presence. As per media reports, the Centre may consider telecommunication CPSUs under the strategic sectors and fertiliser CPSUs under the non-strategic sectors for disinvestment.
The production of fertiliser in India is not able to meet the demand of farmers. During 2016-21, while fertiliser consumption increased by 23 per cent, production has grown only by 4 per cent. Therefore, farmers are dependent on imports, according to a written reply by the minister of chemicals and fertilisers in the Lok Sabha on August 5, 2022. But how long will we be dependent on imports?
A continuous fall in the value of the rupee and a steady rise in the value of the dollar have made imports expensive and this can widen the current account deficit. According to an IMF blog, the steep rise in the prices of food and fertiliser in countries with high food insecurity will add $9 billion to the balance of payment pressures in the current year as well as the next. The Government of India had spent Rs 1.62 lakh crore on the fertiliser subsidy bill due to inflation in the past six months. The same is expected to be Rs 2.25 lakh crore in the current financial year, says an article in CNBC-TV18. Thus, instead of being dependent on imports, we have to increase the production of fertiliser to meet the demand.
In this context, two reports have been published in the media — one in the Business Standard and the second in Moneycontrol, saying that the government has identified fertiliser sector CPSUs for strategic disinvestment. The stock market has also welcomed the news. Shares of the fertiliser enterprises traded in the green after the reports.
It has also been said that the fertiliser sector CPSUs are producing less than capacity. In addition, there is also an assumption that the private sector with its effective management can do better than CPSUs. Therefore, the government may go ahead with the privatisation of the fertiliser sector CPSUs. Hence, the fertiliser sector could be the first candidate in the non-strategic sector under the Strategic Disinvestment Policy 2021.
Both reports say that a proposal has been made and discussed in the meeting of the Core Group of Officers led by the CEO of NITI Aayog. The names of the CPSUs were also discussed in the meeting. The members of the group, in principle, have given a green signal to the proposal. The final decision though is yet to be made.
It has also been said that the fertiliser CPSUs have become a loss-making and fiscal burden for the government. That’s why I also analyse their financial performance.
According to the latest Public Enterprise Survey 2020-21, there are seven fertiliser CPSUs that come under the fertilisers head and cognate group — manufacturing, processing and generation sector. These CPSUs are Brahmaputra Valley Fertiliser Corporation (BVFCL), Fertilisers and Chemicals (Travancore) Limited (FACT), Hindustan Fertiliser Corporation (HFCL), Madras Fertilisers (MFL), National Fertilisers (NFL), Rashtriya Chemicals and Fertilisers (RCF), and Fertiliser Corporation of India Limited (FCIL).
But, according to both reports, there are eight CPSUs, and the last one is FCI Aravali Gypsum and Mineral (FAGMIL) under the department of fertiliser. Earlier, it was merged with FCIL and then further demerged in 2003.
During the fiscal year 2020-21, the financial performance of the fertiliser CPSUs has been mixed. The revenue of all seven CPSUs has decreased marginally by 7.42 per cent — from Rs 0.28 lakh crore in FY20 to Rs 0.26 lakh crore in FY21. However, due to a sharp decline in expenditure from Rs 0.26 lakh crore to Rs 0.23 lakh crore, the overall net profit increased by 9.8 per cent during the same time. And this happened because the Covid-19 pandemic had no effect on the growth of the agriculture and fertiliser sector.
While National Fertilisers Ltd came to a profit of Rs 249.63 crore from a loss of Rs 171.01 crore, Madras Fertilisers returned to a profit of Rs 2.87 crore from a loss of Rs 125.63 crore during the financial year 2019-20 and 2020-21. Now, except BVFCL, all fertiliser CPSUs are profit-making units. Not only this, NFL and RCF constituted 80.1 per cent of the total revenue of all CPSUs in the financial year 2020-21 from this cognate group.
However, there is doubt on whether the privatisation of these will get success as the present state of affairs is not favourable. So the step is most likely going to be stuck. It would be difficult for the government to privatise fertiliser CPSUs because they are directly linked with agriculture. And any initiative of privatisation will be opposed by farmers. We have already seen in the past that farmers’ unions forced the government to take back three contentious laws. So, we can say that the privatisation is likely to miss this fiscal as the process is at the initial stage of administrative clearance.
Vinay K Srivastava is the author of ‘Privatisation of Public Enterprises in India’ and teaches at ITS Ghaziabad. Twitter: @meetdrvinay. The views expressed in this article are those of the author and do not represent the stand of this publication.
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