Privatisation No More a Dirty Word

Context: An analysis of the Government of India’s (GoI) clear position in privatisation of public sector enterprises.

Evolution of Privatization in India:

• Disinvestment Commission, 1996: Headed by G V Ramakrishna outlined the privatization agenda.
• Section 5.4 of Budget 2000: having following elements -
  • Restructure and revive potentially viable PSUs.
  • Close down PSUs that cannot be revived.
  • Bring down government equity in all non-strategic PSUs to 26% or lower.
  • Fully protect the interests of workers.
• Annexure 3 of Budget 2021: Objectives of GoI’s disinvestment policy included -
  • Minimizing the presence of Central Public Sector Enterprises (CPSEs), including financial institutions.
  • Creating new investment space for the private sector.
  • Post disinvestment economic growth of CPSEs/financial institutions through infusion of private capital, technology and best management practices.
  • Disinvestment proceeds to finance the social sector and developmental programmes.

Positive aspects of current policy

• The clarity in strategy: There is no attempt on the part of present government to restructure CPSEs. GoI intends to have a presence in four strategic sectors; GoI’s presence will be meaningful and consolidated.
  • Atomic energy, space and defence.
  • Transport and telecommunications.
  • Power, petroleum, coal and other minerals.
  • Banking, insurance and financial services.
• ‘All or none’ approach towards sectoral presence: There is no ‘call option’ awarded to itself through a 26% stake, giving the government a veto right on crucial business decisions.
• Kept financial objectives apart from strategic ones: The disinvestment policy is not based on the narrow financial consideration whether a CPSE is (or can be) profitable or not, but on whether GoI should be running a particular CPSE at all.
• Addressing the downward spiral trend in CPSE: Between 2009-10 and 2018-19, net revenue from operations to capital employed had reduced from 137.1% to 92.6%.
  • Net profit to capital employed reduced from 10.15% to 5.56%.
  • Economic Survey 2019 highlights that privatized CPSEs have been able to generate more wealth from same resources and confirms that privatization unlocks potential of CPSEs to create wealth.
  • India’s transition from queue of years to get a landline telephone connection (1980s) from the telecom department to the world’s highest per-capita data consumption and cheapest data rates (2010s) supports privatization.

Conclusion: India needs an economic model that is compassionate in its reach, which has a light touch in its regulatory approach and is significant in its impact. This model should blend the need for social welfare while catalyzing the animal spirits of a young workforce.