Day-328 | Daily MCQs | UPSC Prelims | HISTORY
[WpProQuiz 373]
[WpProQuiz 373]
THE CONTEXT: The government has set its sights on an aggressive plan to sell its equity holdings in State-owned enterprises from which it hopes to rake in Rs 1.75 trillion. In order to so, the govt has significantly widened the scope of its privatization plan by unveiling a new policy for strategic disinvestment of public sector enterprises that will provide a clear roadmap for disinvestment in all non-strategic and strategic sectors.
Fulfilling the governments’ commitment under the AtmaNirbhar Package of coming up with a policy of strategic disinvestment of public sector enterprises, with following feature
Non-strategic sector
The policy of government on the 18 strategic sectors Other sectors
18 strategic sectors under 3 different classificatory types are
Policy regarding PSU by the govt
With the increase of supply of PSU stocks and the constrained investor appetite had started affecting the prices. The trade-off between the political objective to privatize and revenue maximization was witnessed the most in this period. Resultantly, the government resort to Strategic Sales.
However, in departure from past govt is also disinvesting profit making venture with a rationale that disinvestment of profit-making enterprises by public offering of shares is desirable as it leads to dispersed shareholding and avoids concentration of economic power.
However, in case of bank , an amalgamation policy was followed which reduced the number of national bank from 28 to 12 by merging various bank .
Overall approach
Since 2014, Modi government’s strategic disinvestment approach was to sell minority stakes in public companies to raise revenue, while retaining management control. During the 2014-2019 period, the government raised Rs. 2,79,622 crore from the disinvestment of public sector enterprises (PSEs), compared to Rs 1,07,833 crore collected during 2004-14. However, this has changed now. Recently, five companies were up for 100 per cent disinvestment, including three large profitable companies such as Bharat Petroleum Corporation Ltd. (BPCL), the Container Corporation of India and the Shipping Corporation.
Historical antecedents: Industrial Policy in India
[ Trivia : first Industrial Policy Statement of 1948 was a restatement of the 1945 categorization as adopted by the interim government.]
Industrial Policy Statement – 1948
Industries were divided into four broad categories
Industrial Policy Resolution – 1956
Despite the demarcation of industries into separate categories, the Resolution was flexible enough to allow the required adjustments and modifications in the national interest.
Industrial Policy Measures in the 1960s and 1970s
The industrial licensing policy of 1970 confined the role of large business houses and foreign companies to the core, heavy and export oriented sectors.
Industrial Policy Statement – 1980
The industrial Policy Statement of 1980 placed accent on promotion of competition in the domestic market, technological up-gradation and modernization of industries
A number of measures were initiated towards technological and managerial modernization to improve productivity, quality and to reduce cost of production. The public sector was freed from a number of constraints and was provided with greater autonomy. There was some progress in the process of deregulation during the 1980s. In 1988, all industries, excepting 26 industries specified in the negative list, were exempted from licensing. The exemption was, however, subject to investment and locational limitations. The automotive industry, cement, cotton spinning, food processing and polyester filament yarn industries witnessed modernization and expanded scales of production during the 1980s.
Phases of Disinvestment Policy in India
Phase 1 91 to 99
Disinvestment was mainly through Sale of Minority Shareholding in CPSEs. Mostly, the auction method was adopted for the sale of minority shareholding, though Global Depository Receipts issues have been resorted to as well in the last two years of that phase. There were no Strategic Sales in this period. Ideological focus was on gradual privatization.
Further the focus was also on modernization of PSUs, in order to increase their ‘efficiency’ while protecting the interests of employees. But, the main aim was to mitigate fiscal deficits of the government. It never focused on revenue maximization.
However with Rangarajan Committee a shift from public offerings to strategic / trade sales was witnessed in the field of core and non-core.
Phase 2 99 to 03
The ambit of disinvestment was widened the most during the second phase. Targets higher than ever before were set, a Department of Disinvestment was constituted on 10th December, 1999 and later a full-fledged ministry was set up, an aggressive disinvestment policy was pursued and the government exited several PSUs completely.
Consequently, with higher supply of PSUs’ shares in still-developing market, prices of equity sold were low, subsequently destroying the value of PSUs, resulting in government failure to achieve the disinvestment targets.
Phase 3 03 to 009
The government adopted the National Common Minimum Programme (NCMP) and following are the aspects of the programme that related to the public sector5:
There were no targets fixed and the total receipts. Disinvestment was majorly done through the Offer for Sale or Sale route . It was in this phase that the National Investment Fund (NIF) was constituted. All the proceeds from disinvestment of central PSUs were transferred into this fund and 75% of the annual collections of the fund had to be invested in social sectors. The management of it was assigned to public sector mutual funds.
Phase 5 09-14
The disinvestment process restarted with full vigor but the government didn’t resort to the Strategic Sale route. In most years, the sale of minority shares was done through offer for sale.
How not to disinvest?
A model is followed in India , which neither qualifies as disinvestment nor privatisation. In such transaction—where one PSU is buying out another take place. This result in a transfer of resources already with the public sector to the government and did not lead to any change in the stake of the public sector or government in disinvested PSUs. It can be seen as merely money making exercise merely money-making measures.(ONGC-LIC, HPCL-ONGC)
Further, government is not exiting completely in many of the PSU thus creating contrived confusion in the policy framework( Air India )
Is privatization of bank panacea for success
Looking at the larger interest
whether privatisation is the only option for PSUs
PSU models in different countries
PSUs exist virtually everywhere. In, Asia where PSUs have played an important role in shaping the economy. According to OECD report ,PSUs pull plenty of economic might —
All the above example shows that privatization is not the only panacea for bringing efficiency, improving productivity , and building productive assets.
Reshaping the PSU buy other countries
Three former planned economies have set up centralized holding entities — SASAC in China in 2003, SCIC in Vietnam in 2007 and Druk Holdings and Investments in Bhutan. In 2006, the Philippines pioneered the development of an PSU governance scorecard which has become an important tool for pushing PSU reforms. Since 2004, Malaysia has rolled out a comprehensive ‘transformation programme” to overhaul its PSUs.
An incorporated holding company Temasek to better manage its assets on a commercial basis was launched in Singapore . This allowed its Ministry of Finance to focus on policymaking. At inception, Temasek’s initial portfolio was of S$354 million, spanning 35 companies. Thereafter began the process of restructuring SOEs. Some were corporatized and privatized, others were allowed to go for big global expansions.
THE CHINA EXAMPLE:
In 2003, a holding company, the State-Owned Assets Supervision & Administration Commission (SASAC) was created to manage the SoEs. The agency, which controls nearly 100 of the largest SOEs, lies “at the heart of China’s industrial deep state
WAY FORWARD: WHAT INDIA CAN LEARN?
Negative bids :
MOU models :
CONCLUSION:
While experience of other countries is available to India by way of guidance, it would have to evolve its own techniques, best suited to its level of development. The historic, cultural, and institutional context influences the way in which and the pace at which privatization is implemented. Where market economy is not fully developed, ways would have to be found to safeguard the interests of consumers and investors, which would ensure a fuller play to the wealth-creating role of the entrepreneurs.