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| Disinvestment Needs and Concerns |
Disinvestment (sale of Government’s share in Public Sector Units) is a potential way to generate resources for Government, set right incentives for PSU managements and reward the investing public. However, it is also criticized as “selling the family silver”.
Disinvestment in India is being carried out by Department of Investment and Public Asset Management (DIPAM) under Ministry of Finance.
- · NITI Aayog will coordinate with DIPAM to identify PSUs for strategic disinvestment – wherein Government transfers both majority share and management control to another party (public or private).
Why Disinvestment needed?
- · Few believe the role of Government is just to regulate (Night watchman state) a healthy business environment, rather than being in it.
- · Government presence can distort market dynamics, which becomes unfair for private players (e.g. Coal India Ltd and system of Captive mining).
- · Economic potential of entities (under Government control) can be better discovered in the hands of private investors – as capital, technology up-gradation, efficient governance is undertaken.
- Disinvestment helps in re-aligning taxpayers’ money from spending on inefficient PSU operations to social welfare measures.
- · Disinvestment does provide a substantial capital revenue to the Government, who in turn can spend it to kick-start the economy, as in today’s case of COVID slowdown.
- · This, in turn, can also reduce Fiscal deficit – thereby retaining India’s sovereign credit ratings and attractiveness to foreign investors.
Concerns regarding Disinvestment
- · Risk of capital cronyism exists – which increases inequality in the country.
- · Instances of valuable assets and profit-making companies being undervalued during disinvestment exists.
- · Certain conditions of disinvestment include bailing out of previous financial defaults of the PSUs to banks – for these public funds will be used.
- · When certain disinvestment results in purchase of PSUs by another PSU (like IDBI by LIC) – credibility of the whole process is tarnished.
- · Privatization can also be a hurdle to Social Justice objective – as private players focus on making profits rather than serving the unserved. E.g. Private commercial banks hesitate to open branches in rural areas due to lack of business.
- · Privatization can also lead to foregoing of job reservation policy of PSUs, which had ensured high-quality jobs for Dalits, OBCs and women.
- · With disinvestment and privatization, employee lay-offs is a mandatory fall-out – which creates job loss and social disharmony.
Way forward
- Certain PSUs are profitable institutions and few can become so with an infusion of capital (or) realignment of incentives. Hence, these must be identified firstly.
- · Those PSUs which are not profitable and not relevant can be disinvested – provided a clear strategy on an individual basis is framed to extract maximum value.
- · For this, a third-party valuation of potential PSUs can be undertaken in a transparent manner. Further, the disinvested amount has to be spent either to create assets or to enhance social welfare.
