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The term ‘privatization’ first brings the thought of minimal government interference. However, the government is essential for setting up critical infrastructure for its citizens in ensuring that they could achieve their full potential. Considered widely as the stronghold of administrative functioning; the sectors such as ports, electricity, pipeline, airport & bus services, telecom, roads, etc. are all now absorbing private stakeholders using various business models even going to the extent of disbanding regulators in some of them. All these measures don’t reduce the role of government in development projects but rather are measures taken for reducing operating costs and bringing in rapid development.
For example, the Government initiative (RAFCT) to develop airports in low population-based areas have seen progress wherein the Govt. pays for each aircraft departed on certain specified routes. So far, the Govt. has disbursed 1,800 crores in payments. The telecom has entities (USOF) worth 60,000 crores of wealth that is obtained through levying license fees for different telecom operators in the market. Approximately, 50% of the fund is now used by BSNL in establishing 25,000 mobile towers in the farthest parts of the nation.
Gross cost contracts are used in bus services wherein the operators will be paid a fixed per-km charge and the fares are flexible as per the Govt. discretion. The mining industry is now witnessing private development operators that lease mines under contract from the Govt. For the road development works, hybrid annuity models are laid out under which the auctioneers will have to construct and maintain highways. The Govt. pays a partial or a fractional cost up front and the rest is paid partially over time. At present, even regulators are removed from the port business and large ports are completely privately owned.
Privatization has worked largely due to the quality of services made available to consumers when they think of the alternative normal. Efficiency rates would be far higher in private establishments due to closer supervision and easy availability. While consumers may benefit; these perks could come at the cost of lower salaries, and more working hours for its employees. Therefore, in a growing opportunistic world, it is essential for skilled education and a robust healthcare system are needed to combat the growing demands.
India’s checkered saga with Privatization
The voices for ‘Privatization’ got reinforced only after the timeline of Nationalism faded out. When India became independent, the belief held by leaders and the public favored government control in resurrecting the lives of the poor and preventing oligarchy. From airlines to coal companies, name it and each one of them was nationalized. The 1960s popularly termed the “Indira-era” (led by Indira Gandhi), marked by the rapid nationalization of all private enterprises and amalgamation of them under the public sector. The nationalization of 14 banks in 1969 was a significant episode. Almost 20 years (late-1980’s), India was reeling under a heavy foreign exchange crunch which saw that it could purchase imports only for two more weeks.
Neoliberalism gained favor in the 1980s and privatization, became its bandwagon for assuring a strong economy and contributing to its overall growth. When P.V. Narasimha Rao became the Prime Minister (in 1991), he canceled the Licence Raj system reversing the policies of his predecessor Rajiv Gandhi. Under him, the LPG reforms took place specifically taking on the globalization route as per the IMF recommendations. This was a period characterized by the fall of socialism (collapse of the Soviet Union) and the rise of capitalism (emergence of a single superpower i.e., the United States). The 1993 report on disinvestment under the C. Rangarajan Committee mentioned that aggressive disinvestment must be the new norm with a 100% stake of the Govt. in certain PSUs must be fully privatized.
Rao’s successors: Atal Bihari Vajpayee introduced the Dept. of Disinvestment (in 1999) and gave it official ministry-level status in 2001 later, Manmohan Singh too continued with Rao’s reforms but however the process was very slow as his Govt. tried to revamp the sick PSUs. Under Narendra Modi’s first term as P.M, the Govt. was sold only minimal stakes in PSUs. However, in his second term, shareholdings of both profit- and loss-making institutions were made open to the private sector. BPCL which is a Maharatna company saw its entire Govt. stake approved for sale. Similarly, other companies like SCI, MMTC, NMDC, and BHEL. Similarly, in a recent budget speech Finance Minister Nirmala Sitharaman stated that govt. will have a minimal presence in strategic areas like banking and insurance, telecommunications, atomic energy, and minerals while enterprises under non-strategic dimensions will be privatized or closed. The FDI limit is raised to 74% in the insurance sector from 49% and now allows foreign ownership.
Does unlimited privatization do good for a nation in the long run?
Economists like Thomas Piketty have explained that excessive privatization leads to rising inequality and control of wealth by a select few oligarchs. He took Russia’s example and pointed out that between the 1950s-1980s, there was an equality of wealth among the Russian population while post-1985; the poor became poorer and richer got richer even more creating a huge gap in the inequality levels. In India too, it’s evident when we see the fortunes of Mukesh Ambani and Gautam Adani jump by 24%-30% during the pandemic period.
A case-by-case analysis must be adopted while privatizing for example safeguarding the livelihood interests of employees in sick PSUs. Similarly, PSBs act as a backbone to rural areas in terms of branch expansion and provision of essential banking services (e.g., ATMs). PSBs are the only carriers that can carry govt. interests without any moneymaking intentions. Multiple schemes of the Govt. became a success due to the role of PSBs in rural regions and the trust placed in them. Schemes like PMJDY succeeded due to large-scale PSB presence in these regions. This also worked out successfully when various other direct benefit transfer (DBT) schemes were launched by the Govt.
Experts have said that privatizing the insurance and core financial services are strategic in a sense as it caters to the private details of every Indian citizen and therefore this data must not reach the hands of foreign companies. the government must not withdraw its influence from the social sector leaving its citizens exposed to the predatory practices of foreign players. The government must also ensure that healthcare and education receive more funding as it can improve the socio-economic status and eliminate poverty. The National Health Account Estimates (2018-19) projected a sharp decline in health expenditure from 3.9% (GDP, 2013-14) to 3.2% (GDP, 2018-19). A futuristic estimate showed that it could decline to 2.5% of GDP by 2025. On the other side, the National Education Policy 2020 advocated for investing 6% (of GDP) in education. However, the expenditure remained only at 2.8% (2019-20) and 3.1% (2020-21 and 2021-22).
Abbreviations
RAFCT – Regional Air Connectivity Fund Trust
USOF - Universal Service Obligation Fund
LPG – Liberalization, Privatization, Globalization
PSU – Public Sector undertaking
PSB – Public Sector bank
PMJDY - Pradhan Mantri Jan Dhan Yojana
IMF – International Monetary Fund.
BPCL – Bharat Petroleum Corporation Ltd.
SCI – Shipping Corporation of India
MMTC – Minerals & Metals Trading Corporation
NMDC – National Mineral Development Corporation
BHEL – Bharat Heavy Electricals Ltd.
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