India’s PSUs Privatization: A Necessity Amid Financial Crisis
India, like any other nation, faces financial challenges that necessitate strategic decisions to sustain economic growth and development. The Indian government has taken significant steps to privatize public sector undertakings (PSUs) to address economic urgencies.
Financial Crisis and Policy Failures
The financial crisis that began in 2016, largely attributed to the faulty policies of then Prime Minister Narendra Modi, coupled with the 2020 lockdown due to the COVID-19 pandemic, have significantly impacted the Indian economy.
When a family survives by selling its investments or ancestral properties to meet financial demands, it reflects the severity of financial trouble. In a similar vein, the Indian government finds itself in a precarious position, compelled to sell some of its cherished PSUs to keep the economy afloat.
Government's Justification for Privatization
According to the Indian government, PSUs serving low-priority national security concerns will be prioritized for privatization. Around 20 PSUs, including BPCL Shipping Corporation of India, have received principle approval for privatization by the Cabinet Committee on Economic Affairs.
The disinvestment of approximately 30 PSUs during the 1990s to 2004 period has been justified based on their comparative performance and strategic need. Similarly, countries like Britain and Russia have also reduced their stake in public sector companies in the last century.
Challenges in Privatization
Privatization isn't an easy task. Without an attractive price, no one would want to buy a company with accumulated losses. Moreover, the private buyer will have the right to change the existing management structure and significantly reduce workforce, potentially leading to job losses.
The current recession makes it challenging to disinvest these enterprises. However, the government's intention remains clear: to diversify the ownership of public enterprises.
Government's Disinvestment Plans
Finance Minister Nirmala Sitharaman has outlined plans to privatize all PSUs except a handful that are strategically important. Strategic sectors like defense and aviation will retain some government ownership, with the rest privatized to some extent.
This privatization drive is part of the Atma Nirbhar Bharat Abhiyan (Self-Reliant India) stimulus package, which aims to inject Rs 20 lakh crore (approximately 10% of India's GDP) into the economy. Before the pandemic, the government had already committed to disinvesting Rs 2.1 lakh crore through privatization of PSUs and Rs 1.2 lakh crore through privatization of CPSEs (Central PSUs).
Implications and Future Outlook
The government anticipates that the policy of privatizing public sector companies will boost disinvestment programs. A significant target of Rs 2.10 lakh crore from disinvestment is set for the current fiscal, with Rs 1.20 lakh crore expected from the privatization of CPSEs.
As a result, the government has made forward-looking moves, such as approving the Farmers Empowerment and Protection Agreement on Price Assurance and Farm Services Ordinance 2020, to support agricultural businesses.
In conclusion, while the privatization of PSUs presents challenges, it is a necessary step for the Indian government to ensure economic stability and growth in these unprecedented times.