The Government of India introduced a slew of reforms from May 13th to May 17th, 2020 (“Reforms”). Amongst other reforms, one which stood out boldly was the GOI’s intent to privatize public sector undertakings (PSUs) or public state-owned corporations.
Part 5 of the Reforms clearly stated that the GOI would soon announce a policy whereby
- List of strategic sectors requiring the presence of Public Sector Enterprises (PSEs) in the public interest will be notified
- In strategic sectors, at least one enterprise will remain in the public sector but the private sector will also be allowed
- In other sectors, PSEs will be privatized (timing to be based on feasibility, etc.)
- To minimize wasteful administrative costs, the number of enterprises in strategic sectors will ordinarily be only one to four; others will be privatized/ merged/ brought under holding companies
Privatization is not new to the GOI, though the GOI has always been very cautious of private sector participation in public enterprises. Air India, the state-owned carrier, was attempted to be privatized without success.
A Lack of regulatory clarity coupled with mounting debt and employment and labor concerns made the carrier unattractive for private sector participants including foreign airline companies. The banking sector in India has also seen consolidation with many weaker public sector banks being merged with larger public sector banks in recent years. Privatization seems but a natural corollary to such consolidation. In the telecom sector as well as BSNL and MTNL, the state-owned telecom operators, are also heavily in losses. Privatization may just be the right answer to their woes.
Though the GOI has previously vehemently denied their intention to privatize the telecom sector. Their policy may change now in light of the Reforms. The government must have clear and transparent regulations in place to deal with the numerous issues that arise out of privatization such as labor concerns, management structure, writing off of debt, etc.
The privatization of each PSU must be approached separately and comprehensively and a blanket policy will not do as the PSUs differ greatly from one another. However, the GOI’s policy of privatization of PSUs is better late than never.
Disinvestment in PSUs
Disinvestment in public sector undertakings in India is a public asset sales done by the President of India on behalf of the Government of India.
Objectives of disinvestments
- To meet budgetary needs.
- To reduce the fiscal deficit.
- To improve public finances and improve economic efficiency.
- To encourage a wider share of ownership.
- To raise funds for a golden handshake(VRS).
Importance
- It helps finance the increasing fiscal deficit.
- In long term, it can be utilized as financing large-scale infrastructure development.
- Investing in the economy to encourage spending expansion and diversification of the firm.
- Repayment of Government debts.
Challenges
- The sale of profit-making and dividend-paying PSUs would result in loss of regular income to the Government.
- Strategic disinvestment of Oil PSUs is a threat to National security as oil being a natural resource.
- Disinvestment affects labor forces and social security.
Since the financial year 1991-92 to 2017-18, public assets of worth ₹3,47,439 crores have been sold. The net profit of all 257 operating CPSEs during 2016-17 stood at ₹1,27,602 crores showing the growth of 11.7%. Loss-making CPSEs minimized to ₹25,045 crores in 2016-17 showing a decrease in the loss by 18.58%.
Recently cabinet has cleared the plan to sell 53.3% of its stake in BPCL, 63.8% of SCI, and 30.8% of CONCOR to strategic buyers. 74.2% of its stake with THDCIL and 100% of NEEPCO is to be sold to NTPC.
Source: The Economic times
INDIAN RAILWAY Privatization
The introduction to PPP (Public-Private Partnership) into the Indian railway sector is a welcome to step & this would help the Indian railway sector to become global leaders. The private investment brings new technologies in the market & creates competition in the railway sector as well. The competition will increase efficiency & reduces fares.
Although Government is expecting around Rs 50 lakhs crore of investment in rail project to 2030.
The government has spotted 109 busy routes across India to run 151 private trains for 35 years. These are routes with massive waiting lists and offer the potential to earn. The 151 trains represent only around 5 percent of total trains run in India. Project routes are divided into 12 clusters based out of major city centers, such as Patna, Secundrabad, Bengaluru, Jaipur, Prayagraj, Howrah, Chennai, Chandigarh, and two each for Delhi and Mumbai. 16 private firms took a part in a pre-application meeting last week for a request for qualification
A total of 16 private firms took a part in the pre-application meeting for the request of qualification. Private firms like Vedanta Group’s, IRCTC, GMR, BHEL & many more firms. The government has decided criteria for companies to take a part in the bidding process.
Advantages
- The waiting problem will be solved for passengers (have to pay higher for tickets).
- Improved infrastructure
- New technologies
- Superfast Trains
Disadvantage
- The price of a ticket will remain on the higher side
- Limited coverage for private players
Source : Indiatoday
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Privatization of Public Sector Bank
According to the Reuters report, Government plans to reduce the number of public sector banks. The government is likely to privatize 4 PSU banks namely Punjab and Sind Bank, Bank of Maharashtra, UCO Bank, and IDBI bank, in which the Indian government owns majority stakes through direct and indirect holdings.
The prime minister’s office wrote a letter to the finance minister to speed up the process of privatization. The government may want to raise funds through disinvest their stake and help to cope up with the covid-19 pandemic.
Advantages
- Improvement in services
- Profit will improve
- Loans are sanctioned at a faster rate and there is less hassle
- Private Banks can provide new & updated facilities which can improve the quality of service provided by banks.
Disadvantages
- Central/State Governments require Nationalized banks to implement their schemes like Jan Dhan Yojana, Atal Pension Yojana, Farm Loan waivers, and in Private Banks as Govt can only request not pressurize the Private banks to fulfill their schemes.
- Private Banks will open more branches in the Urban, Industrial areas and focus lesser on Rural Areas.
- The staff workload will be much more, as there will be no union to cater to the safety of employees.
Source: Quora
Privatization of PSEs (Public Sector Enterprises)
India adopted a mixed economy model. In this context, the Public Sector Enterprises (PSEs) were established on a socialistic pattern of development. Apart from that, there was a need to create adequate infrastructural facilities which served as the most important consideration leading to the expansion of the PSEs.
The current direction of privatization of PSEs has been spelled out in a policy laid down by parliament in 2002. The policy stated that the main objective of disinvestment is to put national resources and assets to optimal use and in particular to unleash the productive potential in our public sector enterprises.
Organization of Public Enterprises:
- Departmental Undertaking
- Statutory or public Corporation
- Government Company
The policy aims at:
- Modernization and up-gradation of PSEs
- Creation of new assets
- Generation of employment
- Retiring of public debt
In India, there seem to be broadly have 3 positions with respect to the privatization of PSEs:
- One, PSEs should not be sold irrespective of its performance.
- Second, the market view i.e. the business is not the business of government.
- Third, the privatization of profit-making PSEs is also debated.
For example, following companies are making handsome profits, comes under this category.
- National Thermal Power Corporation (NTPC)
- Oil and Natural Gas Corporation (ONGC)
- Steel Authority of India Limited (SAIL)
- Bharat Heavy Electricals Limited (BHEL)
- Indian Oil Corporation Limited (IOCL)
- Coal India Limited (CIL)
- Gas Authority of India Limited (GAIL)
- Bharat Petroleum Corporation Limited (BPCL)
Issues Related to Privatization of PSEs:
- No Buyers for Loss-making PSEs
- Privatization is not the first option
- Excessive Bureaucratization
Way Forward
- Value subtracting enterprises, where restructuring or even ensuring an additional infusion of funds and other resources in PSEs have not produced results, should be dis-invested or can follow the exit route through the new Insolvency and Bankruptcy Code.
- For example, some of the major loss-making PSUs like BSNL, MTNL, and Air India should follow this route as their losses are greater than their revenue.
- The privatization of profit-making PSEs will still bring in benefits of the efficient operation of the private sector through reduced costs. For example, Air India is damaged with issues like poor punctuality, high staff-to-plane ratio, high operating costs, and overall customer indifference. These issues can be rectified by the privatization of PSEs.
This Presentation made by :-
- Akash Brahmbhatt
- Dhruvesh Modi
- Neel Adroja
- Parth Rohit
- Shivanshu Jha
