Relevance : GS Paper III
Context of the Article
Last month, the Cabinet approved sale of the government’s stake in BPCL.
Reason for stake sale
It is expected to raise about ₹60,000 crore this year which will ease the fiscal pressure.
History of disinvestment
- UPA government: offloading minority stakes and listing them on the stock exchange.
- Vajpayee government: bold moves on strategic sales with many large, loss-making PSUs being sold off.
- Last six years: For the first time, sale of a profitable PSU like BPCL
Significance of privatization
It is argued that the private sector does a far better job of taking savings in the economy and making sure that they are ploughed back productively.
Is private sector more efficient?
- It is not borne out empirically that the private sector is more efficient.
- Even in post-liberalisation India, a number of studies show a trend towards convergence in performance between PSUs and private enterprises.
- Even in banking, until about 2011 when the NPA crisis started, we saw a similar trend.
Analysing sale of stake in BPCL
- If the government sells it now when it is doing well, then it stands to realise a very good price.
- However, that is just pessimistic thinking because it is presumed that every public enterprise is doomed to fail.
How should privatization be done?
- When we sell a 100% or majority stake in one go, then the chances of getting the right price is lower as there is no price discovery process. Later on, we realise the price was perhaps not right.
- Whereas with disinvestment, where we unload in tranches, there’s a better chance of price discovery over time.
Recommendation of disinvestment commission
- The Disinvestment Commission under G.V. Ramakrishna ruled out privatisation of core industries and highly profitable PSUs.
- They also said the proceeds should be used for restructuring other PSUs or spending on rural infrastructure.
- The receipts should not be used for the government’s revenue expenditure.
