A Bold Move

Context: Policy on strategic disinvestment of Central Public Sector Enterprises (CPSEs) announced in Union Budget has some clear benefits.

Policy on strategic disinvestment of CPSEs: under the Budget 2021-22

• Minimal presence of government in strategic areas: like Atomic energy, Space and Defence; Power, Petroleum, Coal and Minerals; Transport and telecommunications; financial services.
  • Government proposed to privatise two public sector banks (PSBs) and a general insurance company.
  • National Institution for Transforming India (NITI Aayog) will prepare a list of companies for strategic disinvestment.
• Complete privatisation or closing of non-strategic sectors.

Issues with the PSU:

• Affects private sector: the presence of state-owned companies in different sectors often creates distortions and affects private sector firms, (dealing with more stringent financial constraints.) – (crowding out effect!)
• Drag on government finances:  A 2019 report of the Comptroller and Auditor General of India shoed that 184 government companies had accumulated losses worth over Rs 1.4 trillion.
• Profits come from non-competitive areas: most of the CPSE profits come from sectors such as petroleum and coal, where competition is relatively restricted.
• Political hurdles: idea of large-scale privatisation, particularly of PSBs, is bound to face opposition from different sections.

Significance of strategic disinvestment of CPSEs:

• Big push to the overall economic reforms agenda.
• Helps to increase overall efficiency gains and boost output - the proceeds from disinvestment can be used to fund investment in areas such as infrastructure.
• Enable government to focus more on policy issues and delivering public goods.

Way Forward: To reap the benefits of strategic disinvestment.

• Ensure proper implementation:
• Bring in maximum transparency in the process.
• Avoid controversies and investigation: on disinvestment decisions.