The temples of modern India popularly know as PSUs were established to strengthen the socio-economic transformation in the country, give a boost to infrastructure projects and foster economic growth. Even today PSUs promote corporate social responsibility and sustainable development in the nation.
In India the policy of privatisation began with the arrival of industrial policy in 1991. Recently, due to consistent poor performance and huge fiscal deficits the idea of privatisation has emerged. The basic goal of privatisation was to imbibe efficiency and productivity in the everyday operations of PSUs by bringing it to the competitive-globalized market.
The process of privatization will be successful in laying the foundation of developed fundamental, structural and property rights. This will also provide more autonomy in decision making, targeted investments, goal-oriented results and will be indirectly promoting betterment of the Indian economy. As there will be reduction in unnecessary political interference, the accountability of shareholders will increase. It will develop more disciplined and efficient labour force. At the same time the increasing competition in the global market will be game changer in lowering the prices. Moreover, the fund saved by this can be directed towards long hauled social and infrastructure projects which are fund starved. Hence, it will eventually serve the public interest.
But at the same time there are some challenges with privatization, loss-making PSUs having huge debt and employee liabilities are facing shortage of buyers. Also, when PSUs’ shares are offered for sale to the private sector, the private sector are more concerned about the shares of profit-making units. Therefore, there can be a scenario when government has to pay to the private owners, as it had earlier happened in the Delhi DISCOM privatisation case. Some of the public sector units operating in India are facing problems and are inefficient due to excessive bureaucratisation; usually their CMDs are bureaucrats who lacks the domain knowledge and technical expertise that are required for industrial growth. The valuation of the PSUs mainly depends on the market structure being developed post-privatisation. Since government needs to give fiscal support to loss making PSUs, the fiscal deficit of the government keeps on increasing every year. Usually to reduce the fiscal deficit, steps like privatisation along with disinvestment are taken by the government. However, recently the scenario in which rapid privatisation is being done depicts that this is an exercise to coverup the budgetary deficit rather than revamping PSUs.
Following are some of the advantages of privatization regarding PSUs:
- Generally private sector enterprise shows better results in terms of profits, efficiency and productivity when compared to PSUs. Therefore, in the long run privatization provides the edge to presently underperforming PSUs.
- The fundamental structural changes are provided by privatization and it gives momentum to PSUs in the global competitive market.
- Privatization also helps to implement best global practices along with adoption of efficient human task force that will eventually foster the sustainable competitive environment and also productive resource management.
- There is positive impact on the financial health of PSUs that were earlier dominated by political hindrance, that in turn resulted in decreasing deficits and debts.
- In general privatization boosts the growing performance benchmarks of the overall industrial sector.
- In the long run privatization proves to be more beneficial for the future growth and prosperity of the human resource.
- Moreover, Privatization will provide efficient and timely service to the consumers and helps to improve the infrastructural facilities of the nation.
Although, as mentioned above there are numerous advantages for privatization, it has some disadvantages also:
- Main focus of private sector is on profit maximization rather on social objectives.
- There may be lack of transparency in private sector and generally complete information about the functionality is not provided timely to stakeholders.
- Privatization sometimes gives rise to corruption and unlawful ways of acquiring licenses. Bribery is common issue influencing the practical adaptability of privatization.
- Privatization encourages malpractices like supply of low-quality products and hidden indirect cost for profit maximization.
- Generally, privatized sector does not get government subsidies and this eventually escalates price inflation and affects citizens.
Hence, privatisation of profit-making PSUs brings benefit for the efficient operation of the sector through reduced cost. Like, Air India is suffering with punctuality loss, high human resource ratio and rising operational cost. These issues can be rectified by the privatisation tool. But government ownership is required for some PSUs having strategic importance such as defence, natural resources, etc. For other crucial sector PSUs government should implement de-bureaucratisation and adopt a GLOCAL (Global and local) approach instead of complete privatisation. Also, it is very essential to create a competitive environment for improving the performance of inefficient PSUs. Moreover, government should strengthen the regulatory framework and ensure efficient and productive functioning of PSUs.
Written By : Sheersh Deep (Class of 2020-2022 )