Editorial Notes

[Editorial Notes] Issue of Privatisation of Public sector enterprises

There has been a long standing debate on the issue of Privatisation of Public sector enterprises (PSUs), whether privatisation is a feasible solution or a loss making move by the government. The article tries to decode the viable options of the government and gives insight to the problems it poses.
By IASToppers
January 09, 2020

Content

  • Privatisation Debate
  • Loss making PSUs
  • Meeting the Disinvestment target
  • Viability of Privatisation
  • Conclusion

Issue of Privatisation of Public sector enterprises

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Privatisation Debate:

The Central government has broadly three positions with respect to the privatisation of public sector undertakings (PSUs).

the public sector privatisation 3

  • According to a reasoning, public sector enterprises are the ‘family silver’ or the wealth of the nation. The undertakings must not be sold off despite their loss making performances.
  • The second reasoning says that ‘the business is not the business of the government’ or it is an open call for privatisation of the PSUs with a leaning towards capitalist economies like the United Kingdom.
  • Another position is critical of government selling off ‘the family silver’ citing the example of Bharat Petroleum Corporation, which comes under this category.

Loss making PSUs:

  • The PSUs which are in huge loss certainly merit privatisation but the real challenge lies in finding a suitable buyer, taking in consideration the huge debt and employee liabilities.

the public sector capital outlay

  • Some of the major loss-making PSUs, Bharat Sanchar Nigam Limited (BSNL), Mahanagar Telephone Nigam Limited (MTNL) and Air India should be privatised as their losses are greater than their revenue.

The case of BSNL:

  • The government tried restructuring and even infusing funds and other resources into the loss making undertaking like BSNL, but it fetched no results.

The case of BSNL

  • The reasons may be mismanagement, lack of expertise and technical knowledge in the highest strata of management.
  • The undertaking which once monopolised the telecom industry especially in operation in the defence sector, has failed miserably.
  • The present move of the government in opening up the defence sector for the private companies is an appreciable move.

Meeting the Disinvestment target:

  • The government’s fiscal deficit has soared to 115% of the Budget estimate for November, which is likely to breach the fiscal deficit target unless there is significant pick-up in revenue collection or government’s asset monetisation plans.

government's fiscal deficit has soared to 115% of the Budget estimate for November Issue of Privatisation of Public sector enterprises

  • The government has a disinvestment target of Rs 1.05 trillion for 2019-2020.
  • Hence, the move to sell profit making PSUS Bharat Petroleum Corporation is out of compulsion to meet the disinvestment target.

Viability of Privatisation:

Privatisation is not a default option; rather, it should be undertaken only out of extreme necessity.

  • According to the World Bank consultants: “Privatization is resorted not just when the firm makes losses, but only when the physical performance is so bad that the PSU becomes a political embarrassment to the Government.”
  • This may explain the hesitation to privatise some of the largest loss-making PSUs-Air India, the BSNL and MTNL- as the embarrassment threshold may not have been reached as yet.
  • According to former Prime Minister Manmohan Singh-the government would not “privatise profit making PSUs working in competitive environments” i.e. if the output price is a competitive price and you still make a profit, then you are efficient and the need to privatise does not arise.

Conclusion:

There is no point in converting a public monopoly to a private monopoly as it will only result in inefficiency being replaced by private profits. Privatisation must be accompanied by competition in the post-privatised scenario.

The structural reforms in the enterprises should be carried and the problems like poor punctuality, high staff-to-need ratio, high operating costs and overall customer indifference must be taken into account.

Privatisation of Public sector enterprises is a viable option only in case of ‘value subtracting enterprises’ but the process must not be in haste, just for the sake of meeting the disinvestment targets set by the Finance Ministry.

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