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Q6- Examine India's policy of aggressive privatisation of state-owned firms. (250 words)
Paper & Topic: GS III à Effects of Liberalization on the Economy, Changes in Industrial Policy and their effects on Industrial Growth
- The subject of privatisation has risen to the fore as a result of the poor performance of some PSEs and the resulting large budgetary deficits.
- Privatization should increase efficiency by exposing PSEs to market competition.
- The term 'privatisation' is used in a variety of contexts, from 'transition to private legal forms' to 'partial or complete asset denationalisation.'
- In India, privatisation is being pursued using two methods:
- The government's shareholding in public-sector enterprises is being disinvested.
- Allowing private engagement in formerly closed locations Sick for a long time and beyond recovery Financially distressed but reversible Profitable enterprises
- Privatization's Challenges:
- For starters, the number of Indian private companies capable of purchasing public sector companies is extremely limited.
- They may put their limited financial and managerial resources to better use by purchasing the enormous number of private companies that are up for sale through the bankruptcy process.
- Then, in both domestic and foreign markets, these successful multinational corporations must be encouraged to invest and grow in brownfield and greenfield approaches.
- Selling to foreign companies, firms, and funds at fair or below-fair valuations has negative repercussions from the standpoint of being 'Atma Nirbhar.'
- Greenfield foreign investment, not takeovers, is what India requires.
- Public-sector employers allow for reservations in hiring.
- With privatisation, this would come to an end, causing unnecessarily social unrest.
- With a hefty handshake for labour, the government should close these in a timely manner.
- There would be valuable land left after scrapping the machinery.
- Selling these plots of land in little increments might bring enormous profits in the coming years if done wisely.
- Because the task is large and difficult, all of this would necessitate the construction of specialised efficient capacity.
- These businesses might be separated from their parent ministries and consolidated into a single holding company.
- The sole mission of this holding company should be to liquidate and sell assets as quickly as possible. For those who are financially troubled yet can be helped.
- In order to attract investor interest, Air India should ideally be debt-free, and a new management team should enjoy the freedom allowed by law in personnel management.
- As the value of the company rises, the government may be able to sell its part and gain additional money.
- Significant income would flow to the government if the situation was handled properly.
- While remaining the promoter and in control, the government can continue to shrink its investment by selling shares and even reducing its interest to less than 51 percent.
- Instead of being target driven to get a reduced fiscal deficit number to impress rating agencies, calibrated divestment to get maximum value should be the goal.
- At the same time, executives may be granted longer and more stable tenures, more flexibility in achieving goals, and more confidence in taking calculated business risks.