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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


  • Model Answer:


  • Introduction:


  • 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.'


  • Body:


  • 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.


  • Next Steps:


  • 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.


  • Conclusion:


  • 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.
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