Reopen The Files, Reconsider Privatisation

Context: In the backdrop of economic contraction, it is prudent to revisit the aggressive privatisation of public enterprises.

Challenges ahead in the road to privatisation

• Doubtful capacity of the private sector: Limited financial and managerial resources of the private sector could be better utilised in taking over firms through the bankruptcy process.
• Declining investment rate: Large private corporates shall invest and grow both brownfield and greenfield investments instead of no real value investment in government enterprises.
  • This is critical for swift economic recovery as investment rates have been decreasing over the years.
• Strategic concern: Associated with sale at fair or lower than fair valuations to foreign entities, firms and funds.
• Broader considerations: Missing out reservations in recruitment, critical role of public sector banks and enterprises in pandemic management etc.

Way forward: Re-calibrating privatisation agenda amidst economic contraction -

• Close and sell assets of long-time sick enterprises: Political mileage shall be leveraged to close these in a time-bound manner with a generous handshake for labour.
  • Sell machinery as scrap, dispose of leftover lands in small amounts, streamlining processes, bring enterprises under one holding company that have the sole mandate of speedy liquidation and asset sale.
• Bring in private management in case of financially sick but can be turned around enterprises: This can happen through privatisation or induction of a strategic partner.
  • E.g. Air India and the India Tourism Development Corporation (ITDC) hotels.
  • Achieving debt-free status and granting adequate freedom to new management remains key challenges. As valuation rises, Government could reduce its stake further and get more money.
• Chinese model for profitable enterprises: Promote both public and private sector enterprises to rise.
  • Government can continue to reduce its shareholding by offloading shares and even reducing its stake to less than 51% while remaining the promoter and being in control.
  • Managements may be given longer and stabler tenures, greater flexibility to achieve outcomes, and more confidence to take commercial risks. E.g. As done when Maruti was set up.