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Editorial: Selling the Family Silver

Chennai, 3 March 2021:

The Covid-19 pandemic raises concerns over the BJP government’s efforts to disinvest PSUs and highlights the need for substantial public investment and subsidies in the economy. It also warrants a re-look at the move to sell off the public sector units (PSU) to raise resources.

It is mainly due to the strategic role given to the public sector in the pharma industry in the 1970-80s, India supplies vaccines to other countries. Much of the support for privatisation is based on the argument that the performance of public enterprises can be improved by exposing them to forces in product and capital markets.

Prime Minister Narendra Modi made a strong pitch for privatisation of public sector enterprises, asserting that the “government has no business to be in business”. In a webinar on privatisation organised by the Department of Investment and Public Asset Management, the prime minister was addressing industrialists on reforms proposed in the Union Budget.

“The times were different, as were the needs of the country, back when public sector enterprises were established,” he said. “The policies that were correct 50-60 years ago, always have scope for reforms.”

Pointing out that disinvestment and asset monetisation were key elements of the Budget, he said that several public sector undertakings in the country were facing losses and need public money to survive.

“In a way, funds that belong to the poor and the aspiring youth are required to be pumped behind these enterprises and they put a burden on the economy,” Modi said. “Public sector enterprises should not be kept running just because they have been running…because they have been somebody’s pet project.”

Globally, the experience with privatsation raised a host of concerns about economic, social/distributional and environmental consequences which have eventually broadened the agenda for state-owned enterprises (SOE) reform in many countries.

In a country like India, it is important to put in place measures to prevent exploitation of monopoly power and wider social costs in the privatisation process. This need to play a significant role in the discussions on how to minimise the economic downturn of COVID-19 lockdown and provide a big push to ‘Make in India’ efforts.Since 2014, Modi government’s strategic disinvestment approach was to sell minority stakes in public companies to raise revenue, while retaining management control.

During the 2014-2019 period, the government raised Rs. 2,79,622 crore from the disinvestment of public sector enterprises (PSEs), compared to Rs 1,07,833 crore collected during 2004-14. However, this has changed now. Recently, five companies were up for 100 per cent disinvestment, including three large profitable companies such as Bharat Petroleum Corporation Ltd. (BPCL), the Container Corporation of India and the Shipping Corporation.

The government is planning to sell 53.29 per cent stake in BPCL—a large profitable company—to a strategic buyer, basically providing the management control to a private party. The planned disinvestment of these big three is in addition to the proposed 100 per cent sale of Air India, and Industrial Development Bank of India (IDBI). The move towards divesting ownership in strategic sectors will have long term consequences.

The timing of the paradigm shift from the strategic disinvestment policy of the government raises questions on the intention of PSE reforms. Is the shift in policy out of necessity to mop up a good amount of resources by selling both profit and loss-making companies PSEs to meet the widened fiscal deficit targets?

The restructuring of the PSEs needs to have a clear vision and strategy, and definitely have a major role in our our multi-faceted strategy to achieve a $5 trillion economy.

In India, the real question is that whether do we have a genuine concern to improve the public sector or the interest rests with merely raising revenue. It is obvious that SOE boards have struggled to play a leading role in developing a strategy and appointments among others. Moreover, the inability to exercise the authority limits the functional autonomy of PSEs in India.

With the COVID-19 pandemic, it is high time the Modi government at the Centre developed a holistic relationship between competent public and private sectors to make the slogan Make in India -meaningful to foster the country’s potential as an industrial powerhouse globally.

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