Embracing Privatisation As A Policy- Some Merits And Perils Of Privatisation For The Upcoming Indian Economy.

While we all are in seventh heaven with the launch of Chandrayan 3, there is one more piece of news revolving around ISRO. In a bold move, ISRO will soon transfer it’s Small Satellite Launch Vehicle (SSLV) to the private sector, following two development flights of the rocket, which aims to provide on-demand services for putting satellites weighing up to 500 kg in low-Earth orbit.

Is it true that there is a strong nudge to government-owned entities to shift the operation paradigm to the private sector?

This is because budget 2023 has much to do with privatisation. For instance, in another case last year, the ISRO granted a contract to a consortium led by Hindustan Aeronautics Limited and Larsen & Toubro to develop five polar satellite launch vehicles (PSLVs), its workhorse rocket with 54 successful flights.

Another example is The Indian Institute of Technology, IIT Kanpur, which has licenced cutting-edge technology to Reliance Life Sciences Private Limited, which has the potential to change the discipline of gene therapy, particularly for several hereditary eye problems.

According to other sources, the government would most likely consider financial proposals to privatise NMDC Steel once the blast furnace at the company’s steel mill in Chhattisgarh is operational. 

And many more…

Why are government-owned corporations or colleges keen on transferring their interests to the private sector?

Following the successful privatisation of loss-making Air India in 2021, it appears that the government will proceed with the privatisation of companies such as Shipping Corporation of India, BEML, HLL Lifecare, Container Corporation of India, and RINL or Vizag Steel, as well as the large IDBI Bank.

It is easy to infer that the expansion of privatisation programmes across the country over the last two years has settled the argument over the economic and political virtues of government versus private ownership. However, such a conclusion is erroneous since proponents of state ownership might have just as readily assessed the expansion of state-owned firms and concluded that their form of economic organisation was winning the intellectual struggle with free market capitalism some years ago.

Rather than pointing to the expansion of privatisation and labelling it fruitful, our purpose is to evaluate the findings of privatisation as a policy.

PSUs (Public Sector Undertakings) in India have contributed to the country’s economic and industrial progress, despite severe inefficiencies. Many Indian PSUs have claimed losses for reasons such as overstaffing, highly rewarded personnel, project delays, managerial delays, etc. As a result, the privatisation of these enterprises provides a sign of hope for their rescue. 

Why the investors found their interest in privatisation?

A ‘predictable regulatory environment and the lack of unnecessary administrative barriers to business in general’ is a key element investors evaluate when deciding whether to bid in a privatisation process. Other essential aspects include enough accessible resources, such as suitable infrastructure and human capital, tax breaks, financial subsidies, and regulatory exemptions.

Let’s explore how privatisation can act as a policy narrative and attract possible criticisms in three prominent parameters.

Can privatisation help in reducing corruption?

Government offices in India serve as an alternate expression to corrupt systems and officials. At the same time, the private sector has grown throughout the years. This leads to the notion that privatisation may significantly reduce corruption. 

But is corruption related only to the government sector? Does the private sector fully devoid of corruption? Recall the cases of the Satyam scam, the 2G scam, The Telgi scam, The Bofors scam and many more, and you will get the answer NO. As a result, there is no assurance that privatisation and the private sector would be free of corruption and rid India of corruption. 

Increased productivity and revenue: The definite pros of privatisation.

To some extent, Yes. Privatisation of a Public Sector Undertaking can improve efficiency since private businesses are more profit-driven than the government. Furthermore, privatising a government-owned business eliminates all political meddling, enhancing efficiency and converting losses into profits. Hence, in terms of the economy, micro-level privatisation often boosts productivity, quality, choice, and innovation, lowers costs & prices, and eventually increases company profits. High incentives, reduced government interference, robust competitiveness, and reinvestment may be downloaded further.

Take the example of Air India, which went from government hands to Tata Sons. Air India reported that since January 27, 2022, when the government transferred ownership and management of the airline to the company, operational parameters have improved. The company has doubled its average daily revenue by increasing aircraft capacity by 27% to 100, increasing flights by 30%, and carrying 72% more passengers. Hence, there is a positive significant impact of privatisation on the productivity of the firm and the employee.

The role of monopoly in privatisation.

This is one of the darkest aspects of privatisation. Yes, you heard that right. If the start of private players is being initiated by a powerful and tough merchant, they will create a barrier for small players to enter the market. Additionally, privatisation in some industries with little competition may result in the monopoly of a single private company. 

For instance, As Adani’s airport aspirations grow, monopolistic dangers become more evident. Is there a chance that one company running airports more effectively may have a monopoly?

Conclusion.

It depends on the industry whether privatising it would be advantageous over time. Let’s compare the transport and education sectors, for instance. The money raised in the transport sector may be put towards making it even better. Nevertheless, there is a need to control fare prices since they might jeopardise the public good by being excessive. In the education sector, the goal of making a profit becomes less important. Thus, it would be difficult for private companies to operate for nothing or minimal gain. Even if it does, there is a higher likelihood that public interests will be jeopardised somehow.

Therefore, there is no sure shot answer whether privatisation will lead to economic growth or not. It should be exercised by calculating the industry specifics on different parameters.