Pros and Cons of Privatization of BALCO


BALCO is an abbreviation for Bharat Aluminium Company Limited. BALCO was incorporated as a public sector undertaking in 1965. It holds the distinction of being the first aluminium producing Public Sector Undertaking (PSU) in India since 1974. BALCO was a public sector enterprise till 2001, with the government of India having 100% stake in the company. In 2001 the government relieved 51% of its equity and control of management in favour of Sterlite Industries India Limited (Parent Company – Vedanta Group). Thus, BALCO, a public enterprise became a private enterprise.

Disinvestment Deal – BALCO

The deal for BALCO’s disinvestment made in the fiscal year 2000-2001 was priced at Rs 551.5 crores and was the government of India’s first disinvestment deal. As a public sector enterprise BALCO functioned under the ministry of mines.

Prior to its disinvestment the company reported an annual turnover of Rs 898 crores in 2000, with a profit of Rs 56 crores. At the time of disinvestment BALCO had two running units, one in Korba Chhattisgarh and another in Bidhanbag, West Bengal, with a total of 7000 employees.

In mid 2000, when the bid when the disinvestment was announced by the government, big private companies like Hindalco (Hindustan Aluminium Company Limited), Sterlite Industries India Limited and others expressed their willingness to acquire 51% stake in BALCO.

As the routine procedure is, bids were called and the highest bidder would have received the majority stake in BALCO.

Meanwhile the government of India constituted a Inter-Ministerial Group (IMG) to supervise the disinvestment deal. IMG also visited the Chhattisgarh plant to have an idea of the production facilities and functioning of the company and also to sense the mood of employees on disinvestment.

BALCO’s Privatization/Disinvestment Controversies

Disinvestment of BALCO caused a lot of commotion in form of employee protests and allegations of corruption in the deal. We will briefly go through them and their consequences if any.

1) Employee Protests

Employee Unions of BALCO were stiffly opposing the disinvestment from day one of its announcement. Unions blamed the Ministry of Mines (MoM) of colluding with private giants and forcefully imposing its will onto the employees. In a letter submitted to the then Prime Minister, Atal Bihari Bajpayee, the union alleged that the management has imposed section 144 (prohibiting assembly of four or more people) in the premises, even when there is no need. It further clarified that it is being done to facilitate the IMG in disinvestment process, without giving a heed to the Union’s concerns.

2) Allegations of Corruption

The disinvestment deal was marred in allegations of financial corruption, right from the beginning. The opposition had blamed the immediate BJP (Bhartiya Janata Party) government of committing gross financial irregularities in finalizing the deal. Ajit Jogi, then Chief Minister of Chhattisgarh alleged that a kick back of Rs 100 crores was paid to the high ranking officials. The opposition also blamed the government of acting coercively to suppress employee protests and neglecting their interests.


Advantages/Pros of BALCO’s Privatization

1) Financial Security

Though, the company was running in profit, before its privatization; only 50% of it was due to operations, while the rest 50% was because of interest earned over the fixed deposits. Privatization thus opened new investments into the company by private players, which the government was incapable of for some reason or the other.

2) Technology Improvement

Privatization of BALCO, even opposed by employees, was good for improvement of production facilities in terms of machinery and infrastructure, ultimately resulting in more production. Sterlite Industries India Limited had the experience of operating the largest copper smelter plant in India. Moreover the cash reserve of 437 crore which the BALCO had accumulated was not enough for its modernization which would require a sum of Rs 4000 crores.

3) Introduction of VRS (Voluntary Retirement Scheme)

The Sterlite management introduced a Voluntary Retirement Scheme for the BALCO employees who wanted to retire with all the sue benefits. The scheme was active from July 31 – august 16, 2001. A total of 956 VRS applications were accepted, a majority of which included workers.

4) Long Term Wage Agreement

The new formed management of BALCO entered into a long term wage agreement of five years with the employees, effective from October 7, 2001. In the agreement a guaranteed benefit of 20% over the basic pay was assured to the employees. Night shift allowance, canteen allowance, transportation allowance, education allowance and hostel allowance were all increased appropriately. An annual leave travel allowance of Rs 6000 was also assured.

5) New Managerial Practices

With the BALCO’s privatization, new managerial practices like job rotation and appraisals were introduced. These practices were absent when the company functioned under the Government of India. It gave the management an opportunity to properly utilize its man power resource and also to adequately reward its employees for their efforts.


6) More Financial Investment

Prior to the BALCO’s disinvestment, the Government of India didn’t had enough accumulated cash to make technological improvements in the company. There was a requirement of over Rs 400 crores to meet the basic improvements. However, the new management proposed to invest Rs 6000 crores and assured to increase the production four times.

7) Long Term Gains

BALCO which registered a turnover of Rs 898 crores in 2000 has now escalated to whopping Rs 9000 Crores in the financial year 2017-2018. This was made possible only by transferring 51% stake of company into the hands of SIL, which had the money and the resources to invest in the improvements of production facilities.

Disadvantages/Cons of BALCO’s Privatization

1) Loss of Control of GoI

BALCO was one of the only major aluminium producing company in India at the time of its disinvestment. The Government of India, under the Ministry of Mines, had 100% stake in the company. It supplied aluminium to other major public enterprises, involved in manufacturing of aircrafts, missiles etc. With privatization the financial and other powers were transferred to SIL and the government now has to negotiate on former’s terms.

2) Jeopardized Employees

Nearly 7000 employees were working in the two production facilities of BALCO; though, the disinvestment was supported by a few of the employees, it was by and large opposed by a majority of them. The government jeopardized the future of a majority of employees, mainly those in the lower levels of management and above 50 years or so.

3) Strikes and Protests

Marred with political controversy and allegations of corruption by the opposition, the disinvestment deal further stalled the work at BALCO. Instigated by the local politicians, the workers of Chhattisgarh plant went on an indefinite strike 3rd March 2001 which lasted for 67 days. The situation was so tense that at a particular time it seemed that the employees might resort to damaging plant equipments and property. Congress ruled Chhattisgarh government under Ajit Jogi, restricted the supply of water and electricity to the plant.

4) Financial Loss

Long lasting protests and strikes have completely stalled the production facilities of BALCO, which in turn incurred a loss to the tone of Rs 50 crores due to the strikes. Though, the loss was temporary, nevertheless it was huge loss for both the SIL with 51% stake and also the Government of India with 49% stake.


Disinvestment/Privatization of BALCO was a major step taken by the Government of India which subsequently opens the route for privatization of PSUs in India. Despite the disinvestment was marred in controversies and allegations of corruption and alleged irregularities were made, the deal was finalized after initial obstructions. The deal was struck to improve the production and profit margin by bringing in a potential investment partner. Looking at the turnover of fiscal year 2017-2018, which is Rs. 9000 crores, it could finally be concluded, that the disinvestment has been a success so far.



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