For God’s Sake, GoI Out Of PSUs

Context: As part of its Atmanirbhar Bharat reform package, government has took an in-principle decision to exit from a majority of public sector undertakings (PSUs), retaining a few in some strategic sectors only.

Continued Government Ownership

• Arguments in favour:
  • Assured supply of goods and services, even in the toughest of times.
  • Ability to distribute goods and services free of cost, or at a lower than market price.
  • Market failure argument: There may be goods and services the private sector will not produce because of the absence of sufficient market or high initial costs.
• Arguments against:
  • Present significance of Private companies: can be a source of assured supply of goods and services
    • E.g. since early in pandemic, private enterprises have been mass-producing Personal Protection Equipment (PPE) kits, masks and other medical equipment.
    • Also are now at the forefront of India’s vaccination drive.
  • Private companies have greater efficiency in production: hence the cost of production would be lower than in any counterpart PSU.
  • Rendered India import-dependent: especially in defence sector due complaints about quality, cost and timeliness of supply from defence PSUs and ordnance factories.
  • PSU being a monopoly, it is unlikely to be producing efficiently. These then require a bail-out from the budget when they become loss-making.
    • This also adversely impacts sustenance of private enterprises in these sectors.

Way Forward:

• Government must rely on a competitive market (with multiple private sector players) to produce goods efficiently and at a low cost, directly subsidising those consumers who require support.
• In the current context, vaccines under production in India are a fraction of the cost overseas.
  • Government can buy the vaccines in bulk at further discounted prices, then distribute them free or at a nominal cost.
• Government can provide viability gap funding, or capital subsidies, or procurement support, or support in R&D in high-technology sectors to incentivise investment in strategic/essential goods.
  • E.g. UDAN (Ude Desh ka Aam Naagrik) scheme that ensures connectivity to underserved markets.
• Extension of PLI to strategic sectors: The path of providing direct incentives to the private sector has already been laid out via the Production-Linked Incentive (PLI)
  • Funds from divestment of strategic PSUs can be used to support PLIs and R&D in the same sector.

Conclusion: Exit from all PSUs, without exception, must become an integral part of the government’s emerging industrial policy framework.