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Better laid plans

Government should prepare a comprehensive policy on privatisation, and a medium-term roadmap

By: Editorial | July 16, 2020 4:29:49 am
india economy, indian economy, economic slowdown, privatisation programme The government’s privatisation programme requires a more considered, thought out process, and better laid plans.

The slowdown in economic activities has taken an increasing toll on government finances. While the pace of contraction in revenue collection appears to be slowing down — the central government’s gross tax collections were down 37 per cent in May, after contracting by 44 per cent in April — the Centre will face a huge shortfall in both direct and indirect tax collections this year. With non-tax revenue also likely to be under pressure this year — revenue accruing from both dividends and telecom fee is unlikely to meet budget expectations — indications that the government is exploring other options of raising resources, including the sale of its stakes in various public sector companies, are welcome.

This year the government had originally budgeted for an ambitious disinvestment target of Rs 2.1 lakh crore, with the sale of stake in companies such as Air India and LIC on the agenda. However, without proper preparation and planning, achieving this target in the current economic environment will be difficult.

In the previous financial year as well, as opposed to an original target of Rs 1.05 lakh crore, later revised downwards to Rs 65,000 crore, disinvestment proceeds ended up at only Rs 50,304 crore. In fact, proceeds from disinvestment have remained almost stagnant at 0.3 per cent of GDP over the past five years. Achieving the ambitious target this year, and generating more revenue consistently, through this avenue, requires a comprehensive privatisation programme along the lines of what was announced by Finance Minister Nirmala Sitharaman in May.

According to the broad contours of the policy presented then, a list of strategic sectors would be notified, which require the presence of public sector enterprises. The private sector would be allowed in these areas, but at least one enterprise would remain with the public sector. In all other sectors, public sector firms would be privatised. This was a bold announcement. In addition to the efficiency gains that are likely to materialise from privatisation, doing so at this juncture will help the government raise the much needed resources. The resources raised through this avenue could be ring fenced and used to ramp up spending in infrastructure, especially in the health sector, to aid the economic recovery.

The delay in announcing the details of such a policy is perplexing. The costs of continuing with loss-making public sector entities, especially those in highly competitive sectors such as aviation and telecom, where no public purpose is served, are too high for the exchequer to bear. The government’s privatisation programme requires a more considered, thought out process, and better laid plans.

The approach of viewing it solely as a means of plugging the revenue gap, especially towards the end of the financial year, needs to be discarded. The government would benefit from drawing up a medium-term road map, listing out the potential candidates, and indicating the period of disinvestment to provide more clarity to investors.

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