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"
While the case for economic reforms may take good note of the
diagnosis that India has too much government interference in some
fields, it ignores the fact that India also has insufficient and
ineffective government activity in many other fields, including
basic education, health care, social security, land reforms and
the promotion of social change. This inertia, too, contributes to
the persistence of widespread deprivation, economic stagnation and
social inequality."
Amartya
Sen and
Jean Dreze
In India for almost four decades
the country was pursuing a path of development in which public sector was
expected to be the engine of growth. However, the public sector had overgrown
itself and their shortcomings started manifesting in the shape of low capacity
utilization and low efficiency due to over manning and poor work ethics, over
capitalisation due to substantial time and cost overruns, inability to innovate,
take quick and timely decisions, large interference in decision making process
etc.
The Government started to
deregulate the areas of its operation and subsequently, the disinvestment in
Public Sector Enterprises was announced. The
process of deregulation was aimed at enlarging competition and allowing new
firms to enter the markets. The market was thus opened up to domestic
entrepreneurs / industrialists and norms for entry of foreign capital were
liberalised.
Prior to 1991, a large number of industries were
reserved for the public sector:
1.
Arms and
Ammunition and allied items of defence equipment.
2.
Atomic energy.
3.
Iron and steel.
4.
Heavy castings
and forgings of iron and steel.
5.
Heavy plant and
machinery required for iron and steel production, for mining, for machine tool
manufacture and such other industries as may be specified by the Central
Government.
6.
Heavy electrical plant including large hydraulic and steam turbines.
7.
Coal and lignite.
8.
Minerals oils.
9.
Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and
diamond.
10.
Mining and processing copper, lead, zinc, tin molybdenum and wolfram.
11.
Minerals specified in the Schedule to the Atomic Energy (Control of
Production and Use) Order 1953.
12.
Aircraft.
13.
Air transport.
14.
Rail transport.
15.
Ship building.
16.
Telephones and telephone cables, telegraph and wireless apparatus
(excluding radio receiving sets).
17.
Generation and distribution of electricity.
Through
Notification No. 477(E) dated 25.7.1991, the industries reserved for PSUs were
reduced to eight areas from the previous list of seventeen.
1.
Arms and Ammunition and allied items of defence equipment, defence
aircraft and warship.
2.
Atomic Energy.
3.
Coal and Lignite.
4.
Mineral Oils.
5.
Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and
diamond.
6.
Mining of copper, lead, zinc, tin, molybdenum and wolfram.
7.
Minerals specified in the schedule to Atomic Energy (Control of
production and use) Order, 1953.
8.
Railway Transport.
This
list by December 2002 includes only three areas reserved for PSUs:
Atomic Energy.
3.
Railway Transport.
Because
of the current revenue expenditure on items such as interest payments, wages and
salaries of Government employees and subsidies, the Government is left with
hardly any surplus for capital expenditure on social and physical
infrastructure. While the Government would like to spend on basic education,
primary health and family welfare, large amount of resources are blocked in
several non-strategic sectors such as hotels, trading companies, consultancy
companies, textile companies, chemical and pharmaceuticals companies, consumer
goods companies etc. Not only this - the continued existence of the PSEs is
forcing the Government to commit further resources for the sustenance of many
non-viable PSEs. The Government continues to expose the taxpayers' money to
risk, which it can readily avoid. To top it all, there is a huge amount of debt
overhang, which needs to be serviced and reduced before money is available to
invest in infrastructure. All this makes disinvestment of the Government stake
in the PSEs absolutely imperative.
The primary objectives for
privatising the PSEs are, therefore, as follows:
·
Releasing
large amount of public resources locked up in non-strategic PSEs, for
redeployment in areas that are much higher on the social priority, such as,
basic health, family welfare, primary education and social and essential
infrastructure;
·
Stemming
further outflow of scarce public resources for sustaining the unviable
non-strategic PSEs;
·
Reducing
the public debt that is threatening to assume unmanageable proportions;
·
Transferring
the commercial risk, to which the taxpayers’ money locked up in the public
sector is exposed, to the private sector wherever the private sector is willing
and able to step in - the money that is deployed in the PSEs is really the
public money and is exposed to an entirely avoidable and needless risk, in most
cases;
·
Releasing
other tangible and intangible resources, such as, large manpower currently
locked up in managing the PSEs, and their time and energy, for redeployment in
high priority social sectors that are short of such resources.
The other benefits expected to be derived from
privatisation are:
·
Disinvestment would expose the privatised companies to
market discipline, thereby forcing them to become more efficient and survive or
cease on their own financial and economic strength. They would be able to
respond to the market forces much faster and cater to their business needs in a
more professional manner. It would also facilitate in freeing such companies
from Government control and introduce corporate governance in the privatised
companies.
·
Disinvestment should result in wider distribution of
wealth through offering of shares of privatised companies to small investors and
employees.
·
Disinvestment would have a beneficial effect on the
capital market; the increase in floating stock would give the market more depth
and liquidity, give investors easier exit options, help in establishing more
accurate benchmarks for valuation and pricing, and facilitate raising of funds
by the privatised companies for their projects or expansion, in future.
·
Opening up the public sector to appropriate private
investment would increase economic activity and have an overall beneficial
effect on the economy, employment and tax revenues in the medium to long term.
·
In many areas, e.g., the telecom and civil aviation
sector, the end of public sector monopoly and privatisation has brought to
consumers greater satisfaction by way of more choices, as well as cheaper and
better quality of products and services.
·
With
the quantitative restrictions removed and tariff levels revised owing to opening
of world markets/WTO agreements, domestic industry has to compete with cheaper
imported goods. In the bargain, the common man now has access to a whole range
of cheap and quality goods. This
would require Indian industries to become more competitive and such
restructuring would be easier in a privatised environment.
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