Big-Bang Reforms Take Off

Context: By privatisation and disinvestment, government is moving towards big-bang economic reforms.

Era of big bang reforms

• Air India privatisation: Air India has been sold back to its original owners, the Tata group, though much the worse for wear after 68 years.
• Broader road map for both privatisation and disinvestment: The banking industry was included for the first time while Air India and BPCL continued to be on top of the list for strategic sales.
• Creation of a bad bank: NARCL-IDRCL structure to tackle bad loans more aggressively.
• Reversal of retrospective tax legislation and concerns over revival of telecoms by allowing conversion of debt into equity.

Challenges in privatisation policy pathway

• Policy uncertainty: Privatisation policy began in late 1990s but remained on hold on wake of political compulsions.
  • Any thinking on privatisation was stalled by political opposition to selling off a national carrier, considered a crown jewel of the establishment.
• Question on efficacy: Despite ambitious disinvestment targets set annually in the budgets, achievement has repeatedly fallen short of the goals.
• Continuing huge losses of public sector enterprises have been a drag on government finances.
  • According to Economic Survey, as many as 110 of 366 public sector enterprises are in a defunct state.
  • The consolidated losses are estimated at Rs 44,816 crore.
• Governance limitations: Rigid bureaucratic attitude towards revenue collections even if it means destroying livelihoods and creating monopolies.
  • The repeated appeals at international tribunals regarding the Vodafone and Cairn tax cases are evidence of this approach.
• Crony capitalism: Charges of crony capitalism were levied after the release of the Radia tapes, but the group seems to have recovered from this setback.

Conclusion: It is time to move ahead and shed the weight of more public sector companies that are being buoyed up by taxpayers’ money. It needs to let both profitable and loss-making public companies be run on commercial lines and thus unlock their productive capacities for the country’s benefit in the long run.