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IT’S TIME TO TAKE A RELOOK AT PRIVATISATION
What the article is about?
- Talks about the need to revisit the privatisation strategy.
Syllabus: GS-III Effects Of Liberalisation On The Economy, Changes In Industrial Policy and their effects on Industrial Growth, Indian Economy
Privatisation:
- Privatisation implies a change in ownership, resulting in a change in management.
- The privatisation of public sector enterprises will occur only when govt. sells more than 51% of its ownership to private entrepreneurs.
Need to relook at privatisation strategy:
- Studies indicate that the gap in growth (and service) between public sector undertakings (PSUs) with autonomy and private firms is not significant.
- British privatisation initiative of British Airways, British Gas, and the Railways led to no systemic difference in performance
- Growth post- privatisation is often due to multiple factors like:
- Better funding under a private promoter versus a starved government budget, a better business cycle.
- Sometimes, the difference in a PSU’s performance (and ability to generate tax revenue) is simply government apathy.
- Privatisation as a revenue source has also offered paltry returns.
- Actual receipts from disinvestment have always fallen significantly short of targets.
- Ex.:- in FY11, ₹22,846 crores was raised against a target of ₹40,000 crores; by FY20, ₹50,304 crores was raised against a target of ₹1 lakh crore (PRS India, 2021).
- Actual receipts from disinvestment have always fallen significantly short of targets.
- Challenge of valuation:
- Ex.:-About 65% of about 300 national highway projects have been recording significant toll collection growth (>15%, since they have been in operation); any valuations of such assets will need to ensure they capture potential growth in toll revenue, as NHAI’s highway expansion bears fruit and the economy recovers.
- Social consequences with privatisation :
- 348 CPSUs in existence in 2018, with a total investment of ₹16.4 trillion and about 10.3 lakh employees in CPSE (in 2019).
- A push for privatisation is a push for mass layoffs, in a period of low job creation.
- Greater concentration of public assets in select private hands is also a medium-term concern.
- In India, about 70% of all profits generated in the corporate sector in FY20 were with just 20 firms (in comparison, the situation in FY93 was about 15%).
Way Ahead:
- Avenue of selective PSU reform could be considered
- China model of corporatised PSUs; promotes better governance, appoints leadership and executes mergers and acquisitions.
- Singapore model: Ministry of Finance focuses on policymaking, while Temasek (the holding firm) is focused on corporatising and expanding its PSUs towards a global scale.
- A PSU with greater autonomy, with the government retaining control via a holding firm, can also be subject to the right incentives.
