Reopen The Files, Reconsider Privatisation

The Hindu     29th June 2021     Save    
QEP Pocket Notes

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.
QEP Pocket Notes