India to privatise state-run cos, bar fresh insolvencies amid virus outbreak

India said on Sunday it would privatise state-run companies in non-strategic sectors and stop fresh insolvency cases for a year, as the economy grapples with a coronavirus-related standstill.

A list of strategic sectors will also be announced in which only one to four public sector enterprises will remain, Finance Minister Nirmala Sitharaman said, as part of a slew of measures to kick-start the economy.

Indian officials said most of the privatisations would happen in the next fiscal year.

India has been trying to divest parts of state-run companies in sectors ranging from aviation to power to fill its coffers, but poor investor sentiment and limited demand have crippled its efforts so far.

The government’s revenues have been hit hard as a nationwide lockdown to prevent the spread of the novel coronavirus has ground the economy to a halt.

The finances of Indian states have also been in disarray, barring a few well-managed ones, but the lockdown of people and goods across Asia’s third-largest economy has hit tax revenues from fuel to stamp duties.

Indian states would be allowed to borrow 5% of gross domestic product, up from 3% earlier, Sitharaman said on Sunday.

The minister also said no fresh insolvency cases would be initiated for up to a year, in a move to avoid a wave of bankruptcies from companies hit by the coronavirus outbreak.

Debt incurred by companies due to the economic fallout of the virus outbreak would not be considered a default under the country’s insolvency and bankruptcy code (IBC), she added.

“Lenders will certainly become more cautious now, considering the impact IBC had on debt recovery, and the fact that debt recovery through IBC will be restricted for at least the next one year,” said Atul Pandey, a partner at law firm Khaitan & Co.

Sitharaman said a special insolvency resolution framework for micro, small and medium enterprises would be brought in soon.