Privatization

ECONOMY/ GOVERNANCE

Topic:

• GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

Privatization

At independence, India adopted a mixed economy model. In this context, the Public Sector Enterprises (PSEs) were established on a socialistic pattern of development.

However, due to the poor performance of several PSEs and the consequent huge fiscal deficits, the issue of privatisation has come to the forefront.

In India, privatisation is sought to be achieved through two measures:

• The disinvestment of the government’s equity in public sector undertakings (selling off PSUs to Private Sector)
• The opening up of hitherto closed areas to private participation.

Merits of Privatizations & Disinvestment

• Improves the efficiency of PSUs
• Attracts Foreign Investment
• Improve financial discipline of PSUs
• Facilitate modernization of PSUs
• Reduces fiscal burden on govt in maintaining PSU
• Signals to the market that govt is promoting free-market principle

Criticism

Social Justice

• Privatisation policy betrays social justice. 
• PSUs have historically played an active role in developing backward regions. 
• Importantly, through reservations, PSUs have ensured high-quality jobs for Dalits, Adivasis and Other Backward Classes. 
• Once PSUs are privatised or disinvested to below 50% government ownership, reservations for these historically marginalised sections will become history.
• Disregard to how PSU employees will cope with the lay-offs that will inevitably follow.

Banks

• India’s experience with Yes Bank and other private sector banks hardly suggests that privatisation will eliminate greed and corruption in banking.
• It was the resilience of nationalised banks that helped save us from the worst effects of the global recession in 2008-09. 
• Public sector banks have also been central to expanding financial inclusion to the unbanked in India over the last five decades
• Rural branches that serve a public purpose more than generating profits will possibly be shut down by the corporates.

Conclusion

Government should make sure that its welfare agenda is not ignored while tweaking its privatization policies.