Privatization of PSUs (PYQ)

Paper 2 : Public Sector Undertakings

Photo by Patrick Hendry on Unsplash

The government policy of large-scale privatization of the key sectors of the economy may affect India’s economic health. Comment (PYQ 2021 - 10m)

“The Public Sector Enterprises are the temples of Modern India” (Pt.J.Nehru). Over 70 yrs of independence PSEs have been given a commanding height role, reform strategy recommended since 1991 still PSU problems have not been solved.

The rationale behind Privatisation:

• The current government has set a target of Rs. 1.75 trillion by selling off its equity holdings in State-owned Enterprises. 

• The Organisation culture of PSEs has become cautious, conservative, risk-averse, and Budget maximizing.

• Most of the PSUs are facing huge losses, affecting the spending quality of the taxpayer’s money.

• Huge political interference acts  as an obstacle to rational decision making

• Over bureaucratization of PSUs led to a lack of professional management and specialization.

• The money generated through tax and non-tax revenue can be used for public infrastructure - after Maruti Udyog limited disinvested to Maruti Suzuki net assets increased to 5700 times.

Challenges of large-scale Privatisation:

• With the policy of privatization, the focus is more on covering the fiscal deficit rather than on market discipline.

• Global experience shows that privatization might result in a monopoly of the private sector or the formation of oligarchies - irrational privatization in Russia,  post-USSR disintegration has resulted in the formation of capitalist czars.

• Takeover by private monopolies can seriously affect the objective of consumer welfare. Eg: Rise of Jio in the Telecom Sector.

• Privatization does not ensure higher efficiency and productivity. ICICI scam, and Yes bank crisis highlighted the lack of corporate governance in the private sector.

• It may lead to the retrenchment of workers who will be deprived of the means of their livelihood. - Case of Air India

WAY FORWARD: 

• Roongta Panel recommendations haven’t been fully implemented yet especially the most prominent one of creating a single holding structure.

• 14th FC hasn’t recommended full-scale privatization and rather group and disinvest PSUs based on 4 categories – high priority, priority, low priority, and no priority.

• The management team is to be given full flexibility to run the enterprises on commercial lines. This was the main reason for the success of Maruti Udyog, ICICI, HDFC, and UTI Bank.

• The government should start the practice of Negative bids. A successful model of Germany for massive privatization after the end of socialism.
  {Negative bid - a bid where the government pays someone to take the company off its hands.}

• MOU models: In  South Korea PSUs with high social obligations operate with private sectors with the help Of MOUs.

  -Arjun Sengupta Committee recommended the MOU concept in 1988 for greater autonomy of PSEs.

• Singapore airlines and ISRO have shown that the public sector can do efficient work and privatization

PSEs are not for making profits but for making nations. Private where possible and the Government where necessary.

Do you think large-scale privatization is needed currently?