21st NOVEMBER, 2019
|RAJYA SABHA TELEVISION|
THE BIG PICTURE: PSUs STRATEGIC SALE
The government kicked off a blockbuster disinvestment plan, lining up the sale of five public sector units (PSUs), including majority stakes in blue-chip oil company Bharat Petroleum Corp Ltd (BPCL) and Shipping Corporation of India. Also on sale will be a 31% stake in Container Corporation of India (Concor) along with management control. Based on current market prices, the sale of stakes in these three firms will fetch the Modi government about Rs 78,400 crore, taking it close to the disinvestment target for the fiscal year.
The cabinet committee on economic affairs (CCEA), which met under the chairmanship of Prime Minister Narendra Modi, also cleared the sale of its entire stake in Tehri Hydro Development Corp of India and North Eastern Electric Power Corporation (Neepco) to NTPC. The CCEA also gave in-principle clearance to the reduction of the government’s stake in select public sector units to 51%, “while retaining management control on case-to-case basis, taking into account the government shareholding, and the shareholding of government-controlled institution
Strategic disinvestment vs normal disinvestment
- Strategic disinvestment is the sale of the government stake above 51% in the unit on the other hand normal disinvestment is the selling of some parts of the government stake but overall government have at least 51% claim in company.
- In case of the strategic disinvestment government have no any management power i.e government have not power to appoint the directors but in case of normal disinvestment government enjoy the power.
- After strategic disinvestment, the company is no longer the state under Art.12 of the constitution so it is not bound to the socio-economic obligations enshrined in the constitution (reservation, pay scale etc.)
What is the reason for disinvestment of the PSU?
Public sector units are the heavy based industries which had been established by Pt. Nehru to act as a growth engine of the economy. But over the years due to maladministration and lack of the competitiveness spirit, these companies became burden for the government and regarded as a sick industries.so there was need for the disinvestment of these company.
Of the various factors responsible for low profits in the PSUs, the following were identified as particularly important:
- Price policy of public sector undertakings
- Under–utilization of capacity
- Problems related to planning and construction of projects
- Problems of labor, personnel and management
- Lack of autonomy
Objectives of the disinvestment policy
This was identified as an active tool to reduce the burden of financing the PSUs. The following main objectives of disinvestment were outlined:
- To reduce the financial burden on the Government
- To improve public finances
- To introduce, competition and market discipline
- To fund growth
- To encourage wider share of ownership
- To depoliticize non-essential services
Importance of Disinvestment
Presently, the Government has about Rs. 2 lakh crore locked up in PSUs. Disinvestment of the Government stake is, thus, far too significant. The importance of disinvestment lies in utilization of funds for:
- Financing the increasing fiscal deficit
- Financing large-scale infrastructure development
- For investing in the economy to encourage spending
- For retiring Government debt- Almost 40-45% of the Centre’s revenue receipts go towards repaying public
- debt/interest repayment
- For social programs like health and education
Challenges to disinvestment
- It is pointed out that privatization of some public enterprises would, in the absence of anti-trust law, lead to the emergence of private monopolies under which resources are misallocated. As a result, consumer welfare will be reduced. Besides, adoption of monopolistic practices will lead to higher prices and lower levels of output and employment.
- It is argued that mere change of ownership, from public to private, does not ensure higher efficiency and productivity of industrial enterprises. In the modern corporate form of business organization, management has been separated from ownership. In case of both public and private enterprises professional managers can be employed to manage the industrial enterprises to ensure efficiency in working. Thus, it is argued that for professionalization of management, privatization of public enterprises is not needed.
- An important argument against privatization is that it will lead to retrenchment of workers who will be deprived of the means of their livelihood. Further, private sector, governed as they are by profit motive, has a tendency to use capital-intensive techniques in production. This will not lead to generation of many employment opportunities. As a result, unemployment problem in India will worsen.
- Disinvestment is also opposed on the ground that it is no solution for loss-making sick public sector undertakings. In fact, it is pointed out that about 50 per cent of loss-making public enterprises, especially in the field of textiles, are those sick units which were taken over by the Government from the private sector to protect the jobs and interests of the workers.
- Disinvestment also assumes significance due to the prevalence of an increasingly competitive environment, which makes it difficult for many PSUs to operate profitably. This leads to a rapid erosion of value of the public assets making it critical to disinvest early to realize a high value.
- The disinvestment of public enterprises is also opposed on the ground that it will lead to the concentration of economic power in a few private hands. This economic power can be used to exploit the consumers on the one hand and workers on the other. Further, greater concentration of economic power in private hands will also lead to increase in inequalities of income and wealth. Thus, disinvestment and privatization is a negation of the objective of promoting equality.
In order to realize India a 5 trillion economy by 2024, the disinvestment of the company should be properly and processed. Apart from the disinvestment, the monetization of the company assets should be also done as it has been locking up vast amount of the unused assets.