Presenting the budget 2021, the Finance Minister, Nirmala Sitharaman introducing government’s Strategic Disinvestment Policy (SDP) 2021, categorically stated that government intends to privatize Central Public Sector Enterprises (CPSEs) in all sectors except four, viz., one, atomic energy, space and defence; two, transport and telecommunications; three, power, petroleum, coal and minerals; and four, banking, insurance and financial services. Even in these sectors, the government proposes to limit the presence of CPSEs to a ‘bare minimum’. The budget also sets a disinvestment target of 1.75 lakh crore for the fiscal 2021-22 through privatization of BPCL, Air-India, Shipping Corporation of India, IDBI bank, Bharat Earth Movers Ltd., Pawan Hans, Neelacjhal Ispat Nigam Limited plus two public sector banks and one General Insurance Company.

To better appreciate the significance of this statement, we need to go back to the Nehru's era during whose tenure as Prime Minister, public sector enterprises were built with a broader perspective of generating employment, investing in projects that have long gestation periods, setting up industries in backward regions for ensuring equity in growth across the country and regulating prices of their products, etc., besides generating profit. Saddled with multidimensional objectives, these enterprises indeed suffered operational inefficiencies owing to the absence of market competition, plus political interference, and bureaucratic lethargy.

Ever since reforms were launched in 1991, the government had been disinvesting its stake in PSEs on a piecemeal basis to address their operational inefficiency, while of course, retaining their management control with itself, perhaps not to give a go-by to their social objectives in toto. Over it, for all these years, disinvestment is often resorted to as a means to finance government’s increasing fiscal deficit rather than streamlining their functioning.     

Now, with the announcement of the government’s intention to exit from the PSEs other than the four notified sectors, it becomes evident that the ownership of these enterprises would also be transferred to private sector. It thus becomes clear that henceforth profit-maximization will be the sole objective of these to-be-privatized PSEs. 

Although there is no disagreement in general with the government’s proposed policy to privatize CPSEs, and use the so generated funds for giving stimulus to economic growth, analysts wonder if its timing is right. For, mere transfer of ownership does not add anything new to the GDP. Nor does it create any fresh employment, which is considered as essential to boost consumption in an economy that is suffering from pandemic-caused recession-kind of a situation.  On the other hand, there is no wonder if the new owner of the privatized PSEs retrenches employees under the plea of revamping its operational efficiency. Here, it is also worth remembering the fact that many of today’s sick PSEs were originally discarded by the private enterprises when they became sick. This fact coupled with mounting NPAs in public sector banks that were created by private sector borrowers subtly points out that privatization is not the sole panacea for industrial sickness. This phenomenon warrants the government to design a process that creates scope for many bidders to participate so that the best value can be realized for the assets to be sold and also find a right entrepreneur who could put the sold assets to the best use, while enhancing scope for increased production and employment. And this is certainly a long-drawn process. Over it, such a sale of PSEs in a recession time erodes the financial sector’s capacity to meet the legitimate requirements of the pandemic-stuck economy. The whole scenario thus compels one to wonder if the implementation of the proposed strategy would in any way pump-prime the economic growth.

Here it is worth recalling what the External Affairs Minister S Jaishankar said at the inaugural session of the 5th edition of Asia Economic Dialogue 2021: “The litmus test of good governance, which I would say, is employment. That if you have jobless growth, I don’t think that’s a great testimony to policies of any country”. Observing that, while every government in the world supports their businesses, we in India “haven’t done enough”, Jaishankar asserted that “We need to stand up for our business. Not just big business but MSMEs.” In this context, the budget appears to have not done much for MSMEs. Indeed, “the fiscal stimulus to economy” by the budget as a whole, as the former chief statistician Pronab Sen observed, “was small… as the bulk of increase of fiscal deficit is supply side measure, not demand side”.

One should also remember that there is no growth in private sector’s investment in manufacturing industry. Indeed, in the last 20 years, no Indian entrepreneur had shown any interest in the core sector production. Even today, government is wishing for ‘animal spirits’ to prevail private enterprises to invest in building new/additional capacities. Against this backdrop, one wonders if anybody would come forward to buy sick PSEs. That being the reality, employment creation is likely to get hit unabatedly. Even for that matter, do the domestic corporates have such a capacity which would enable them to buy so many core sector CPSEs of such magnitude as SAIL, etc. Which is why, it is feared that the move to sell PSEs at the current juncture and use the proceeds thereof to revive the economy may not yield the desired results.