|Introduction: Define privatisation and give context of privatisation in India.|
Body: Write the objectives, Benefits and concerns of privatisation in India.
Conclusion: Conclude giving a way forward.
Privatisation means transfer of firms from the Public to Private Sector through the transfer of ownership, management and control.
India adopted a mixed economy model, where the Public Sector Enterprises (PSEs) were established on a socialistic pattern of development. However, due to the poor performance of several PSEs and the consequent huge fiscal deficits, privatization was pursued.
Privatisation was intended to achieve the following objectives.
- Improve the efficiency and financial discipline of PSEs.
- Facilitate modernization of PSEs.
- Reduce fiscal burden on government in maintaining PSEs.
- Attract Foreign Investment.
- Signal to the market that government is promoting free-market principle.
The Privatization exercise in India has been a mixed experience. The privatization drive picked the pace between 1999 and 2004. Many big companies like Maruti Udyog were privatized at that time and most recently Air India was privatised.
- These companies have performed well since their privatisation. For example, Hindustan Zinc is now worth Rs 40,000 crore and government still holds a 29.5% stake. Thus, the government has benefitted from these companies.
- It led to optimum utilization of resources of the economy, which were being spent on maintaining PSUs. It helps in fiscal consolidation of the economy.
- It fostered competition in sectors monopolized by the PSEs leading to better services to consumers. For example, Maruti Suzuki has 50% share of the market at present.
- It reduces political interference and bureaucratic delays in the functioning of the enterprises. Which raises the overall efficiency of the economy.
- It increased democratization of the economy, with more participation from common citizens.
However, there are several concerns with the privatization exercise
- Social justice
- Privatization undermines the development of backward regions that are not economically viable.
- The public sector provides employment to historically backward section under affirmative action, privatization will hinder affirmative action.
- Employment: The Central Public sector India provides employment to over 1 million people, privatizing PSE may lead to mass layoffs in the when job creation is low.
- Loss of revenue: Loss-making entities are not attractive for the private sector. However, selling profit-making and dividend-paying PSU would result in loss of a regular source of income to the government. In 2020-21, when the pandemic struck the economy, 45 PSU companies paid dividends of more than Rs 46,000 crore to the government.
- Strategic and national security concerns: Privatizing PSUs in strategic sectors, like Oil, may threaten our strategic goals. For example, the attempt to privatise BPCL.
- Failure in Resource mobilisation: The government has not been successful in achieving the disinvestment targets in many fiscal years. In FY11, ₹22,846 crore was raised against a target of ₹40,000 crore; by FY20, ₹50,304 crore was raised against a target of ₹1 lakh crore.
- Short term solution to fiscal needs: Privatization with the aim to finance fiscal deficits is only a short-term solution and does not solve the bigger issue of mismanagement.
- Creation of private oligopolies: With increased concentration of public assets in a few private hands will lead to higher costs to consumers and loss of strategic control with the Government. For example, Telecom sector in India only has 3 major players left.
The present model of privatization may include the steps like de-bureacratisation and greater autonomy, especially for PSEs of strategic importance. The revenue generated must be utilised for capital investment.
India could follow the example of Singapore, where the government created an independent body (Temasek holdings) to corporatize and developing public sector units. Any policy on privatization must consider social and strategic benefits of PSUs apart from the economic benefits.