A Critical Analysis of Disinvestment in Bharat Petroleum Corporation Limited: Future Financial Performance and Impact on Indian Economy
Creators: name: Katira, Shiv
Publisher: name: Zenodo
Year: 2020
Subjects: Bharat Petroleum Corporation Limited
Central Public Sector Enterprise
Disinvestment
Privatisation
Strategic Sale
Indian Economy
Financial Analysis

description: On November 20, 2019 Cabinet Committee on Economic Affairs (CCEA) chaired by the Prime Minister Shri Narendra Modi approved disinvestment in 5 Central Public Sector Enterprises (CPSEs) including Bharat Petroleum Corporation Limited (BPCL)- a profitable government company. The decision of selling all the government stack in BPCL through strategic sale has brought on many criticism as the benefited stated by the government of disinvestment is lesser than its benefits to Indian economy if the stack is retained by the government. To check whether these criticisms are true that BPCL is performing well and contributing more if it is under the government ownership, I compared the future financial performance of BPCL if it is privatised with the future financial performance if it is not privatised. I used liner regression model with intercept and liner regression model without intercept to estimate the future financial performance under the both of the case. To check the argument of the bad impact of the decision on Indian economy I estimated the fiscal deficit under both the cases using weighted average mean taking the base of estimations presented in the Union Budget 2020-21. To analyse, whether the method of the disinvestment- strategic sale- is better or the alternate methodShare Issue Privatisation (SIP)- I compared both the methods conceptually with support of empirical data. The results shows that BPCL will perform well under the government ownership in the terms of profitability and efficiency. BPCL can perform well under the ownership of private ownership only if it rises its product price or by reducing the work force size. The fiscal deficit is lower for the fiscal year 2020-21 if BPCL is privatised, but this benefits is only of the short term in the nature. The government has to give up the dividend revenue from BPCL if it is privatised which will effect negatively to more than one fiscal years. Empirical data shows government can generate more disinvestment revenue through the SIP but its process is more time consuming. The other reason why government should choose SIP method is that it will help Indian capital market on the other hand strategic sale method will is beneficial to only one entity- the buyer (and in the situation of ‘Winner Curse’it will not benefit the buyer too). In my opinion, rather than privatising BPCL- a profitable CPSE- government should privatise any other loss making CPSE to unblock the resources, divert them to productive activities and increase the efficiency in the loss making CPSE by handing over them to the private owners.
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