Strategic impasse

That the strategic sale of 13 profit-making public sector units PSUs has been put off by the UPA government should come as no surprise. Wh...

That the strategic sale of 13 profit-making public sector units PSUs has been put off by the UPA government should come as no surprise. When there is so much controversy and disagreement between the Left and the UPA on selling 10 per cent of BHEL shares, it is hardly realistic to imagine that the government would go ahead with the privatisation of profit-making PSUs. After all, the sale of BHEL shares did not even amount to privatisation because the government was in any case going to remain the majority shareholder. Given this reality, the strategic sale of the 13 profitable PSUs 8212; a move first proposed by the NDA government as part of its disinvestment programme 8212; was clearly a non-starter.

Under the strategic sales route, a public sector company is sold off to a private company that usually already has experience in the sector. While this may be good for the company that has changed hands, since the management expertise of the new owner gives it a better chance of emerging stronger from the deal, it increases its market share and creates a monopoly. Also, while the strategic sale route might have got better valuations for the exchequer, it has a one-time impact.

The real dynamic benefits of privatisation come from an increase in efficiency that results from the better allocation of resources in the economy. The public offer route 8212; even if it fetches a lower price 8212; allows a wider ownership pattern. As the former British prime minister, Margaret Thatcher, discovered, it was politically far more palatable to offer the public a share in national assets. But is the latest decision to stop the sales of 13 profit-making PSUs really about the strategic sales route versus the public offer route 8212; as the Union finance minister seemed to suggest 8212; or is it about the question of privatisation itself? Is the UPA actually thinking of selling profit-making PSUs? Has it seriously given up the strategic sales route altogether? In the case of a loss-making PSU, a strategic sale might actually be the best option 8212; the management of a private company may feel that it will be able to turn the company around, while the public may have no interest in buying it. To sum up, good economic policy requires the government to sell loss-making PSUs through strategic sales, and profit-making PSUs through the public offer route.