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  • 20 February, 2021

  • 15 Min Read

The new Public Sector Enterprises Policy

The new Public Sector Enterprises Policy

  • The new public sector enterprises policy envisages that the strategic sectors have a limited number of players restricting it to maximum of four public sector enterprises of a holding nature.
  • The remaining enterprises would be rationalised in terms of mergers, amalgamations and privatisation if feasible.
  • As part of the ‘Aatmanirbhar Bharat Abhiyan’, Finance Minister Nirmala Sitharaman had announced that there would be a maximum of four public sector companies in strategic sectors, and state-owned firms in other segments would eventually be privatised.

Under the New Policy:

  • Strategic: Atomic energy, space, defence, trans and telecom, power, petro, coal, other minerals, banking, insurance and financial services will be classified as strategic sectors.
  • Privatization: The remaining companies in strategic sectors will be considered for privatization/merger/closure and non-strategic sectors will be considered for privatization, where feasible or for closure.
  • In strategic sectors, the minimum presence of existing companies at the holding level will be retained under government control.
  • The strategic sectors have limited number of players restricting it to maximum four public sector enterprises of the holding nature.

Issues Related to Privatisation of PSEs

  • No Buyers for Loss-making PSEs: No one would buy PSEs with their huge debt and employee liabilities. If shares of public sector enterprises are offered for sale to the private sector, the latter will naturally be interested only in the shares of profit-making concerns. Therefore, the government may even have to pay the buyer, as it happened in the case of the Delhi Discom privatisation.
  • Privatisation not the first option: In India, privatisation is not a default option; rather, it is resorted to only out of extreme necessity. This may explain the hesitation to privatise some of the largest loss-making PSEs like Air India, BSNL and MTNL.
  • Excessive Bureaucratisation: Public sector industries in India are plagued with inefficiencies due to excessive bureaucratisation. Their chairman-cum-managing directors are bureaucrats who may not have domain knowledge or technical service people bereft of business acumen. Also, monopoly/oligopoly of certain PSEs leads to the administrative price mechanism. For example, oil PSEs have been allowed to make a profit as they can dictate oil pricing, this allows them to have profits but there have been no innovations in the oil marketing sector.
  • The valuation of the PSEs critically depends on the market structure post-privatisation.
  • Since the government had to give fiscal support to loss making public firms, the fiscal deficit of the government kept on mounting year after year. One specific step that has been taken to reduce the deficit is privatisation, through an act of disinvestment.
  • However, the entire way in which disinvestment has been undertaken gives the impression that it is an exercise to bridge the budgetary deficit rather than revamping of PSEs.

Way Forward

  • Value subtracting enterprises, where restructuring or even ensuring an additional infusion of funds and other resources in PSEs have not produced results, should be disinvested or can follow the exit route through the new Insolvency and Bankruptcy Code.
  • For example, some of the major loss-making PSUs like BSNL, MTNL and Air India should follow this route as their losses are greater than their revenue.
  • Privatisation of profit-making PSEs will still bring in benefits of the efficient operation of the private sector through reduced costs.
  • For example, Air India is marred with issues like poor punctuality, high staff-to-plane ratio, high operating costs and overall customer indifference. These issues can be rectified by the privatisation of PSEs.
  • For PSEs of Strategic importance, the government should go for the de-bureaucratisation of the public sector, instead of privatisation.
  • The government should disinvest its share of luxury hotels and restaurants, bakery, etc. By disinvesting shares of these luxury goods-producing public sector industries, it can raise a lot of financial resources.
  • Privatisation must be accompanied by competition in the post-privatised scenario.

In order to improve the performance of inefficient units, the creation of a competitive market environment is absolutely essential.

Source: TH

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