PRIVATIZATION OF PSUs, Pros, and Cons of Privatization of PSUs, Will privatization help the economy?
The privatization of any organization mainly refers to transferring the power of authority from the Government to the private hands. If the same happens in the case of Public sector undertakings(PSUs) then it is called the privatization of PSUs. Disinvestment in PSUs in India is a process of public asset sales done by the President of India on behalf of the Government of India. It can be directly offered for sale to the public or indirectly done through a bidding process. The PSUs are running in India for approximately 58 years but now many renowned personalities of India are suggesting the Indian Government to step up towards the privatization of these PSUs
In India, privatization has been accepted with a lot of resistance and has been dormant (1) initially during the inception(2) period of economic liberalization in the country.
While announcing economic reforms in light of the Covid-19 impact on businesses and Governance, India’s Finance Minister(Nirmala Sitharaman) has made a big announcement: Every PSU in India will be privatized, except 4 in strategic sectors. PSUs in India are Govt owned entities, focusing on either strategic sectors or non-strategic sectors. In a big decision, Govt has now announced that all PSUs in non-strategic sectors will be privatized, while in the strategic sector, there will be only one to maximum 4 PSUs fully owned by Govt.
In the current fiscal year 2020, months before the coronavirus pandemic happened, the Govt had already committed disinvestment of Rs 2.1 lakh crore via privatization of PSUs, and Rs 1.2 lakh crore via privatization of CPSEs. As of October 2019, there were 10 Maharatnas PSUs, 14 Navratnas PSUs, and 74 Miniratnas PSUs. Besides, there are nearly 300 CPSEs (central public sector enterprises).
Some of the biggest privatization moves which have already been made include that of Indian Railways, 100% privatization efforts for Air India, and even oil and gas companies like Bharat Petroleum, besides SAIL, Shipping Corp of India (SCI), THDC India and NEEPCO and more.
By 1991 when the country embarked on the policies of liberalization, privatization became a natural cult. Selling off unviable PSUs and phasing out those from areas where the private sector can provide better and cheaper goods and services was imperative. Governments since then have sold several units either fully or partially.
There always has been a rational justification in disinvestments(3) so far. For instance, it was argued, and rightly so, that the government need not be in tourism, hotel industry, consumer goods manufacturing, automobiles, and such sectors where private players can provide consumers with abundant choice. The argument was the government could utilize the money gained by selling off PSUs to improve services in public goods like infrastructure, health, and education.
Confronted with an unprecedented fiscal deficit and worried by an economy in crisis, the government has to find resources. Disinvestment is a preferred option for ideological and practical reasons. But when a sterling company like Bharat Petroleum Corporation Ltd (BPCL) is also being offered for ‘strategic disinvestment’ along with Shipping Corporation of India and Container Corporation of India, the nation naturally expects to know the strategy behind it. A few more PSUs have been selected by the government where its shareholding will be brought to less than 51 percent.
Contrary to the accepted rationale of privatization, we have seen the government withdrawing from the health and education sectors, leaving the citizens with almost no choice but to seek costly education and unaffordable health care offered by the private sector.
Why do governments divest stake in public sector undertakings?
Some political parties that come to power believe that “the government has no business being in business”. That is, the government’s role is to facilitate a healthy business environment but the core competence of a government does not lie in selling fuel or steel at a profit. That is one reason that divestment is often a priority item in the election manifesto of such parties.
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