The Narendra Modi-led government announced the privatization of major strategic sectors. Facing rigid resistance from administrations, the administration issued a hundred-page proposal on privatization. Finance minister Nirmala Sitharaman announced the new Public Sector Enterprise Policy in the Union Budget of 2021-22.
Departments in favor of the bill
A total of nine state-owned defense companies have given in to accept the bill. Divestment is already underway for Bharat Earth Movers Ltd., where the government intends to prune its stake from about 54% to 28%. Defense Ministry said,” the new policy is aimed at improving domestic production “by encouraging private sector participation across all sectors by way of privatization of public sector enterprises, which shall allow infusion of private capital, technology, innovation, and best management practices….”
A conundrum for various sectors
The Department of Space suggested that the two state-owned firms under its control—Antrix Corp. and New Space India Ltd.—shouldn’t be considered for privatization. The Atomic Energy Department also demanded two out of four firms within its administrative control to be outside the scope of the privatization policy. The Indian Rare Earths (India) Ltd., argued that it be kept out of the privatization policy “since it’s normally practiced globally that critical resources are kept under government control, based on geopolitical circumstances the country is expected to face”. The Coal department that has already been allotted to the private authorities has shown huge fluctuations in its returns.
TPT Policy Advocacy & Recommendations
- With slowing economic growth making the prospects of buoyant tax collections difficult, the Modi government will have to rely heavily on stake sales in the state firms. There is no doubt in the upliftment of the economy but the divestment in the strategic sectors of the nation will yield a staggering economy.
- A natural monopoly occurs when the most efficient number of firms in an industry is one. privatization would just create a private monopoly which might seek to set higher prices to exploit consumers. These need regulating to prevent abuse of monopoly power. Therefore, there is still a need for government regulation. Several public service sectors in the lieu of bonuses might make their services vulnerable to tampering. Also, the government will miss out on their dividends as they will be celebrated by the wealthy shareholders of the organization.