The New Privatisation Policy was first announced in May 2020 and was then detailed in the Union Budget which was presented in February by Nirmala Sitharaman, Finance Minister. The pushback of the country’s new privatization policy is supported by the Defence Minister, Rajnath Singh.
The argument of the Defence Ministry
Rajnath Singh stated that private industry has not “evolved enough to match the requirements of the Armed forces”. He further added, “Privatisation of PSUs will create a private sector monopoly which may be detrimental to the national security”. A letter written with the approval of the Defence Minister made an argument that rather than competing against each other, the state-owned firms play a complementary role to one another. For Bharat Earth Movers Ltd., the divestment is already underway and the government intends to prune its stake from 54% to 28%.
Does The Ministry Want to Keep Control Over The Firms?
The letter clearly showed the arguments made by the Ministry which suggests that they only want to keep control over the firms. The Defence Ministry has raised a concern which states that the ecosystem around PSUs in the sector that includes the small businesses will be hurt by the privatization. Former Army Chief General (retired) VP Malik said that the lack of competition in the defence sector which Singh cites as an argument has resulted in no improvement in quality and technology which in turn has led to higher costs.
TPT Policy Advocacy & Recommendations
- With some unique requirements, defence is a specialized sector. The government may continue to play a role in the defence sector. The severe stress in the economy has provided the road to reconsider the reluctance to let in the private sector in the areas of space development. But not all firms need to be retained under government control.
- The Government needs to carefully weigh the appetite for large stake sales as the policy comes with its own set of challenges.