Illustration by Soham Sen | ThePrint
Illustration by Soham Sen | ThePrint
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The term ‘reform by stealth’ had become popular in India, because most governments either did not have the requisite numbers in Parliament, or the intellectual commitment to markets. When selling off shares of public sector enterprises, finance ministers avoided using the term ‘privatisation’, and instead chose to call it ‘disinvestment’.

In a marked change away from ‘reform by stealth’, Budget 2021 announced that it would privatise all public sector enterprises, other than those in strategic sectors. It also announced privatisation of two public sector banks (whose names have not been announced). This public announcement was a bold statement by the Modi government that might see a backlash from bank unions and other parties.

This commitment to reform is particularly significant in the wake of the new agricultural market laws on which the government is facing protests.

Also read: Nirmala Sitharaman has sent a very clear message to revive economy. Now, it needs follow-up

Lack of traction for privatisation in India

Typically, privatisation policy in India has been motivated by the need to raise resources in tough fiscal conditions. This is evident in the choice of the word ‘disinvestment’, as opposed to ‘privatisation’, which implies that the ownership and management of companies or assets move to private hands. Privatisation, as a means for improving efficiency and hence achieving higher productivity and improved allocation of resources, has not been the guiding principle in earlier Budgets.

In sectors such as defence and national security, which could be the termed ‘strategic’, the government may continue to play a role. However, in areas where there are private players and where there is already a competitive market (such as steel, pharmaceuticals), or where the market has a few dominant players but is regulated (such as telecom), it makes sense for the government to exit.

Past efforts at privatisation through strategic sales — when it was attempted by the first NDA government in the early 2000s — have faced several hurdles. One reason is endless litigation, sometimes by the labour unions, and sometimes on account of valuation of government assets and the prices at which they were sold.

Concerns on valuation have also got officials in charge of privatisation tangled in legal battles, even well past their retirements. This has made civil servants risk-averse and unwilling to sign off on any sale at any price.

How to avoid these problems

One way to avoid these problems is to use a ‘dribble’ method of selling shares in the market for the listed central public sector enterprises or CPSEs. The government can announce that it will sell a tranche of shares on the market at specific intervals, thus allaying concerns about large sales to one private entity at low prices. This method also side-steps the question on whether the government “timed” it right.

Another strategy could be to amend the Prevention of Corruption Act, 1988, to distinguish between “errors” in decision-making and “acts of corruption” by civil servants.

The government should continue to use the offer for sale through the stock exchange or Exchange Traded Funds as a means for divestment while committing to selling larger stakes.

Concerns on valuation have also shown up in the case of asset monetisation schemes. Assets in government hands are often not of high value. They only become valuable when the private sector takes over and is able to turn them into productive ones. But this valuation cannot, in retrospect, be held as the standard at which assets should have been sold in the first place.

The track record of governments since the 1990s in meeting privatisation targets has been poor. Over the past few years, a large share of the proceeds has come from buy-backs or CPSE-to-CPSE transfer, or public offers where government entities like LIC were the purchasers. While these have helped raise resources, they haven’t actually helped reduce the stake of the government in these entities.

This movement of money from one pocket to another should be completely avoided if the government is to truly move on the path of privatisation for improving efficiency in the economy.

Also read: The 5 factors that will determine the shape of the Indian economy in 2021

Allaying private sector concerns

Another element of privatisation is the moving of operations of publicly owned infrastructure assets to private companies.

The Committee on Revisiting and Revitalising the PPP model of Infrastructure Development (2015), chaired by Vijay Kelkar, had pointed out the risks in public-private partnership contracts. Early construction risks such as those related to obtaining environmental clearances and land acquisition had led many PPP projects into trouble as the private sector is not able to solve these issues.

A partnership that is less risky for the private sector can be those assets where the risk (such as construction of a road) has already been borne by the government. A toll-operate-transfer (TOT) model, where investors make a one-time lump-sum payment in return for long-term toll collection rights, may thus be more suitable for infrastructure projects. This model has seen some success in recent years.

Extending this concept further, Finance Minister Nirmala Sitharaman announced that monetising operating public infrastructure assets is a very important financing option for new infrastructure construction. She has proposed to launch a National Monetisation Pipeline of potential brownfield infrastructure assets.

Among these projects are assets of the National Highways Authority of India and Power Grid Corporation of India Ltd, that include operational toll roads and transmission assets; Dedicated Freight Corridor assets for operations and maintenance (once they are commissioned); airports monetised for operations and management concession; Oil and Gas Pipelines of GAIL, IOCL and HPCL; AAI airports in Tier II and III cities; other railway infrastructure assets, warehousing assets of CPSEs such as the Central Warehousing Corporation and NAFED, and sports stadiums.

In addition, Sitharaman proposed that an asset monetisation dashboard will also be created for tracking progress, and to provide visibility to investors. The government can allay the concern of investors about unknown risks by putting up a website that provides for all the information about particular assets for the private sector to evaluate. Complete transparency in what is up for sale, and the legal and other issues related to the asset need to be resolved, and communicated, prior to the sale. The valuation problem can be addressed through auctions so that the market can itself discover the “fair price” of a particular asset.

After these bold proposals, implementation by the government will be carefully scrutinised. The finance minister has committed that the sale of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Limited will be completed in 2021-22, as will IDBI Bank and the privatisation of two public sector banks and one general insurance company.

If the government puts its full weight behind these and does not allow either unions, the bureaucracy or the opposition to derail its plan, this will indeed be a game-changing Budget for India.

Ila Patnaik is an economist and a professor at National Institute of Public Finance and Policy.

Renuka Sane is an associate professor at NIPFP.

Views are personal.

Also read: Why Indian economy seems set for revival in the new year after a tough 2020


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  1. I think the Opposition parties (Left, Naxals, Congress) should be just getting their plans ready with new innovative ideas to protest and derail what is planned in the budget. Their gangs should be getting ready and very soon new protests will be launched. If it was “policy paralysis” before now its becoming “protest paralysis”. Democracy is really working well in India and one side plans and other side ensures that the plans fail. This is like one leg kicking the other and finally the country can never stand on its own. Protest, Protest and Protest till the country fails. Good going India, right on track to destruction and we are very happy that all this can be done by using democracy. Long live Indian democraZy




  3. What happened to monetizing the vast land of railways? A lot of empty vertical space is there over railway tracks and stations. Let builders build malls and flats over them and pay Railways some money in return.

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