April 22, 2021
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Rotten venture
HAL disinvestment is likely to go up to 26 per cent

The privatization process involving Hindustan Aeronautics Limited (HAL) is giving a strong headache to the government which is considering a proposal to make the whole process more attractive by elevating the disinvestment equity to 26 per cent.

Fearing a backlash over the disinvestment issue as job security is a sensitive topic and political high drama may assume a threatening proposition, the government is evaluating several options to bring back the HAL on track by attracting domestic and foreign investors. But mere 10 per cent is too little to make any progress.

Earlier, the government had announced that it will go for a disinvestment process involving strategic defence public sector undertakings (DPSUs) to raise investment for modernization of these ventures and make them more economically viable.

Thus, the government had decided to go for off-loading of equity in HAL a meager 10 per cent which had made it the third defence public sector undertaking after Bharat Electronics Limited (BEL) and BEML to be headed for disinvestment.

But the views are diverse as Ministry of Defence is trying to go slow and keeping a step by step approach, both Commerce Ministry and Ministry of Small and Medium Enterprise (MSME) want a speedy process so that the PSUs should remain competitive and meet India’s national interests.

The Commerce Ministry and Ministry of Small and Medium Enterprise (MSME) are of the view that HAL disinvestment plan will fall flat if the Cabinet does not go for raising the present level of 10 per cent to at least 25 per cent or more.

In fact, the government had gone for 34 percent disinvestment in BEML and 25 percent in BEL, but in case of HAL a mere 10 per cent has failed to draw enough attention from the investors.

Earlier, Defence Minister A K Antony had told Lok Sabha in a written reply that the net profit of HAL after tax for 2009-10 was Rs1,969.41 crore, 2010-11 was Rs2,114.26 crore, and 2011-12 was Rs2,370 crore (provisional). There is hardly any money for modernization process.

In September last year, Antony had given in principle approval to the plan to sell 10 percent stake in HAL over a five year period to get resources for the public sector undertaking’s modernization.

The idea is the disinvestment is expected to reduce the government's burden for the 10-year Rs 20,000 crore modernization plans for the HAL, which is struggling to find its place in the aerospace market.

The MoD had asked the Finance Ministry for at least Rs 10,000 crore to upgrade the infrastructure of the HAL. But the Finance Ministry has rejected any cash injection to HAL infrastructure development and rather commented that the government should evaluate other options more quickly.

Despite road blocks, Defence Ministry insiders said that the privatization process of HAL seems to be on high gear as the government is trying to formally propose disinvestment equity of HAL up to 26 per cent by end of this year.

They said that the over health of the company and HAL’s present position as Asia’s second largest aerospace company is at stake. If the project delays and non implementation of infrastructure development initiatives remain a dream for the HAL for some more time, then the company may have to collapse.

Already the internal assessments suggest that HAL is in a bad shape and urgent steps should be taken to salvage the efficiency of the company to remain competitive. At the moment, several projects are languishing.