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Privatise, monetise and modernise is the right approach

The private sector will bring in investment, modern technology and better global management practices

February 25, 2021 / 01:35 PM IST
Source: Reuters

Source: Reuters

On February 24, in a webinar by the Department of Investment and Public Asset Management (DIPAM), Prime Minister Narendra Modi made a strong pitch for privatisation of Central Public Sector Undertakings (CPSUs) and monetisation of underutilised and unutilised assets.

The government is moving ahead with the mantra of privatise, monetise and modernise. This will lead to better opportunities for the youth of the country. It is not possible for the government to run enterprises and remain the owner. Modi emphasised on the need for a strong partnership of the private sector in India’s development.

Today, many PSUs are loss making and are supported by taxpayers’ money. As per the Public Enterprises Survey 2018-19, the total loss incurred by 70 CPSUs is Rs 31,635 crore. It is about 1.96 percent of the total investment in CPSUs and 0.16 percent of GDP. Without doubt these CPSUs are a fiscal burden for the economy, and Modi rightly said that they cannot run any longer on legacy claims.

To create demand in the market, the government is committed to capital spending, especially in infrastructure. In this backdrop, monetisation is a very important option to finance infrastructure construction. A ‘National Monetisation Pipeline’ will be launched to monetise 100 assets that are under government control. An asset monetisation dashboard will be created for tracking the progress, and to provide visibility to investors.

The government is of the opinion that when sells these assets, the private sector will fill that space. The private sector will bring investment, modern technology and better global management practices. It will lead to efficiency and job creation. Budget 2021 gives a clear road map for India to move on the high growth trajectory.

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It is important to monitor the process and ensure transparency. For this the government has announced ‘The Strategic Disinvestment Policy-2021’ (SDP-21) in Budget 2021. The SDP-21 shows the commitment of the government for disinvestment in all sectors. It has kept four areas for the strategic sector where bare minimum CPSUs will be maintained and the rest will be privatised. These four areas are: (i) atomic energy, space and defence; (ii) transport and telecommunication; (iii) power, petroleum, coal and other minerals, and; (iv) banking, insurance and financial services.

Modi is batting for privatisation. It is clear with his statement that the government has no business being in business. The government has already proposed to take-up the privatisation of a few CPSUs, one general insurance company, along with the IDBI Bank and two public sector banks. The NITI Aayog has been asked to work out on the next list of CPSUs that would be taken up for strategic privatisation.

As per government estimates, the monetisation will generate Rs 2.5 trillion. The money garnered from privatisation asset monetisation will be put to public use. The government has set a target of Rs 1.75 trillion for disinvestment in FY22. The SDP-2021 clearly says that disinvestment proceeds will be used to finance various social sector and developmental programmes of the government. However, past experience says much of the government disinvestment proceeds were used to bridge budget deficit.

The privatisation and assets monetisation programme has received criticism from the Opposition and from some economists — they are of the view that this is nothing but the selling the family silver. They suggest that loss-making CPSUs should be privatised. The idea appears to be cutting off deadweight, but that need not be the case. Loss-making CPSUs should be restructured before going for divestment to get better proceeds. We have a live example of Triveni Structurals Limited. It was a loss-making enterprise that was converted into profit-making through restructuring.

The privatisation of CPSUs is being handled by the DIPAM. The success of the SDP-21 would depend upon how effectively the DIPAM tackles it. We have seen that the disinvestment target of the current fiscal might not be achieved even though the stock market is touching new highs every day.

It is the need of hour to revive the disinvestment commission. The government should re-constitute an independent commission to formulate and implement the government’s mega privatisation programme. Experts or professionals, drawn from different fields of accounting finance, capital market and CPSUs management should be nominated on this commission.

Vinay K Srivastava teaches at ITS Ghaziabad, and the author of Privatisation of Public Enterprises in India. Twitter: @meetdrvinay. Views are personal.
Vinay K Srivastava is an author and teaches finance at ITS Ghaziabad. Twitter: @meetdrvinay. Views are personal.
first published: Feb 25, 2021 01:35 pm

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