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Source: The post is based on the article “Privatized Air India’s takeoff can lead other PSUs to thrive as well”published in Mint on 23rdMarch 2023.
Syllabus: GS 3 –Economy – Mobilisation of Resources
Relevance: Privatization of the PSUs
News: Air India was completely privatized in January 2022. The airline has recently placed the biggest order of aircraft in India’s aviation history. The article discusses how privatization can benefit and improve the functioning of PSUs.
About the Privatization of Air India
What are the benefits of privatizing Air India?
Air India after its privatization had ordered 470 new aircraft. This would create around 70,000 direct jobs and thousands of indirect jobs.
It will also benefit air travellers to get newer routes, have cheaper fares and better overall service.
Looking at the orders of Air India, other competitor airline might also order more than 1,000 aircraftsoon. This will ultimately benefit the economy.
This shows that privatization has benefited the airlines in all aspects and hence, other PSUs should also be privatized on the same lines.
What steps can be taken by the government to privatize other PSUs?
Privatization has not been an easy or popular decision. Governments try to play safe due to public sentiment. Therefore, an alternative route can be taken.
The government should shift from privatization towards corporatization, i.e., there should be a shift from a 100% sale of government assets towards strategic disinvestments.
This corporatization can be done by listing the shares of the PSUs in the stock market.
This would providea good price for shares, protect the government against short-term price swings as well as increase the time period of volatility in the equity market.
The shares of PSUs should be distributed to the general public, with no individualor entity able to possess more than a 10% ownership. This approach of corporatization may be more transparent and practical to execute.
As soon as the government’s share in a PSU falls below 50%, it becomes a private corporation with an independent board and professional management and free of the 4Cs—CAG, CVC, CBI, and Courts.
The government can then continue to sell the remaining of its ownership at a premium until it has totally vacated the firm once it has been privatized.
For employees of those PSUs, a stock option offers with a promise from the management of not being laid off can be made.
This method of corporatization would benefit both the government as well as employees of the PSUs. Some of the examples of companies that were privatized in this way are British Airways, ICICI Bank, etc.
What can be the way ahead?
The government can start considering the corporatizing of those PSUs first in which it has low shares such as Concor (54.8%), Bharat Petroleum Corp Ltd (53%), Indian Oil Corp Ltd (51.5%), and BEML (54%).
The government should consider corporatizing its PSUs since there is strong investor demand for Indian assets, both international and local, institutional and retail.
This would help the government to earn good revenues, which it can invest in infrastructure and the social sector.