Reopen The Files, Reconsider Privatisation

The Hindu     29th June 2021     Save    

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.