India's privatization reforms since 1990
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Privatization has been ongoing in India since the early 1990s across multiple sectors. The document discusses privatization that has occurred and is planned in the coal, telecom, airport, energy and banking industries. Recent moves by Prime Minister Modi's government include allowing private companies to mine and sell coal, overhauling labor laws to reduce red tape for businesses, and planning to sell stakes in public sector companies to meet increased disinvestment targets and improve efficiency. However, fully privatizing some major industries like coal remains uncertain.
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India's privatization reforms since 1990
- 1. Privatization in India Sagar Bhatt About – Economic reforms and Privatization since 1990. Privatization in various sectors.
- 3. "Reform is the art of the possible“- Arun Jaitley In Modi’s regime, after relaxing the fuel prices, he picked up the pace of economic reforms. Using an executive order, the cabinet agreed to allow private Indian companies to mine and sell coal at an unspecified future date, Finance Minister Arun Jaitley said. That sets the stage for the biggest liberalisation of the industry in more than 40 years. Modi also begun an overhaul of creaky labor rules, cutting the power of labor inspectors and slashing the red tape for small companies that makes India one of the toughest places in the world to do business. “UNDOING INDIRA” Former Prime Minister Indira Gandhi nationalised the coal industry in 1972, creating one of the world's largest mining companies, state-run Coal India.
- 4. The system was intended to provide steady supplies of fuel and help industrialisation, but Coal India is now deeply dysfunctional. Most of India's electricity is generated by coal, but long power cuts are the norm in much of the country, which has the world's fifth-largest coal reserves but is the world's third largest importer. On inspection, 64 out of 103 power stations had coal for less than a week, mainly due to a shortfall in supplies from Coal India, according to the power ministry. Private companies are already allowed to mine supplies for their own power plants and other industrial projects, and Coal India hires some private firms to operate mines. But until now private companies have not been permitted to sell coal. "This would lead to an optimum utilization of the national resource," Jaitley told reporters, adding that there was no move to fully privatize Coal India. The government does plan to sell 10 percent of its majority holding in the inefficient behemoth, which is plagued by corruption.
- 5. PRIVATISATION In brief, privatisation means such an economic process through which some public sector undertaking is brought either partially or completely under private ownership. Broadly speaking, establishing a new enterprise in private sector instead of public sector is also privatisation. Not only this, depriving public sector of the job of production which was earlier reserved for it or transferring its production, without depriving it, to the private sector also amounts to privatisation. Its chief features are given below: (i) Reducing the role of public sector and increasing the role of private sector (ii) Reducing fiscal burden of the government (iii) Reducing the size of the government machinery (iv) Speeding up economic development (v) Improving management of enterprises (vi) Increase in government treasury (vii)Increasing competition by opening industries reserved for the public sector to the private sector.
- 6. In 1991, India’s ninth prime minister from Indian National Congress, Narsimha Rao changed the economic policy and began privatising government companies, beginning from Bharat Aluminium Company, Bharat Sanchar Nigam Limited, few airports like Delhi airport, Mumbai, Hyderabad and Bangalore to Maruti Udyog. Governments look to privatise because of many reasons. It is a philosophical belief that governments should govern and not purchase, sale or manufacture goods.
- 7. Privatisation in coal sector India’s coal industry forms an integral part of it’s energy sector, generating more than half of the country’s power supply every year. Although no specific date has been given on when the privatisation process will begin, mines owned by some of the India's most well known companies, such as Power Ltd and Jindal Steel, will eventually have to go up for sale. Commercial mining will be permitted, and an electronic auction for the mines will take place. Current output of India’s coal industry certainly makes it important for the disinvestment. Although India controls the world’s largest coal reserves, the country ranks as one of the biggest importer of coal. In the last 2 fiscal years, more than 15 billion units of electricity were lost due to the unavailability of coal. Power cuts have become commonplace in various cities and towns, and in 2011/12 , power problems were estimated to cost the Indian economy upwards of $64 billion. This is one of the major reasons why there was a great need to disinvest the coal sector.
- 8. Telecom sector privatisation Bharat Sanchar Nigam Limited (BSNL) was previously known as Department of Telecommunications and had been a monopoly. MTNL was operating in Mumbai and Delhi only. During that time, BSNL was inefficient, slow, bureaucratic and heavenly unionised. Subscribers had to wait for five years to get a telephone connection. But, in 1991, everything changed as the telecommunication system was privatised. Telecom commission ,the highest decision making body in the telecom ministry, is keen on disinvesting govt equity in Telecommunications Consultants India Ltd(TCIL) and forming a “finance corporation” for the telecom sector in 2013.
- 9. Privatisation of airports In 1997, the Airport Authority of India had privatised four airports – Bengaluru International Airport (Bangalore), Indira Gandhi International Airport (Delhi), Rajiv Gandhi International Airport (Hyderabad) and Chattrapati Shivaji International Terminus (Mumbai). Bengaluru International Airport and Shivaji International Airport was sold to GVK Group. Rajiv Gandhi International Airport and Indira Gandhi International Airport to GMR Group. There have been many gains from privatising airports. The efficiency (both productive and allocative) of airports and aeroplanes have increased, modern management styles and marketing skills to improve efficiency has been adopted and better investment decisions have been taken. Recent developments in privatisation of airports- A decision made recently in this year aims at privatising the Chennai, Kolkata, Jaipur and Ahmedabad airports are now likely to see fresh investments of Rs 1839 crore.
- 10. Privatisation in energy, minerals and mining by Modi Government The disinvestment dept. is set to sell a 5% stake in SAIL. It is estimated to fetch around US $ 330 million. In the crucial energy sector the govt. has initiated the process of selling a 5% stake in ONGC by inviting bids for the appointment of a merchant bank to manage the sale process. This sale alone is expected to generate US$ 3 billion in revenues and is awaiting cabinet approval. In the metals and mineral sector, the pending residual stakes sale in Bharath Aluminum(Balco) and Hindustan zinc(Hzl) are being expedited. This would raise an additional US$ 2 billion Furthermore, the govt is also likely to sell it’s stakes in the National Hydropower Co(NHPC), Power Finance Co(PFC) and Rural Electrification Co(REC) Lastly, the govt will probably also sell its shares in various state owned banks to the public in line with a RBI panel recommendation.
- 11. The Indian govt. has raised it’s fiscal year 2014-15 disinvestment goal by $2.5 billion to $10.5 billion, while also setting an ambitious fiscal deficit target of 4.1% compared with an actual deficit of 4.7% in FY 13/14 Disinvestment has never been easy in India, but there is optimism that this year’s disinvestment target is achievable by Modi. The party explains why, even after 3 decades of privatisation, the Indian govt continues to own 260 enterprises at the central level and thousands more at the state level. Barring successful enterprises categorized as “jewels” such as ONGC,SAIL, BHEL, returns from the rest are lower than the quantum of investments in them. In 2012, there were 64 loss making central govt owned enterprises, including National carrier, Air India.