Problems with Privatisation

In this post, you will learn about the problems in privatisation. The following reasons have been identified in this regard:

1. Absence of Strategy: There is no proper strategy for disinvestment. There were no pre-defined standards, norms, or procedures relating how to disinvest, when to disinvest, what to disinvest, and to whom to disinvest.

2. Unclear Objectives: There were no clear goals, whether it was to meet fiscal deficit, to create revenue, to make them more competitive, to increase productivity, etc.

3. Improper Timing: The government was not focussing on the timing of disinvestments and consequently, most of the private sector investors are shying away from the process because of unattractive proposals made by the government. Due to wrong timing, several PSUs were privatised at low price, such as ITDC, Maruti, etc. A good price can be achieved if privatisation is done when the performance, market capitalisation and the industry prospects are good.

4. Difference of Opinion: There was no consensus over the disinvestments among the several political parties.

5. Lack of Proper Labour Strategy: Prior to foraying into disinvestments, labour was not taken into confidence. No proper strategy was constituted for their redeployment, training and development. There was labour unrest in BALCO on the issue of disinvestment, and a countrywide strike in PSU banks on the issue of privatisation and consolidation.

6. Wrong Objectives: The entire incomes of disinvestments are being used to mitigate fiscal deficit instead of utilising them for development of the social sector and building infrastructure.

7. Opaque: Lack of transparency in the entire process raises various eyebrows of many and has become a big hurdle.

8. Lack of Marketing: The government has done little and was unsuccessful to attract foreign suitors for the disinvestment process in India.



You may already be aware that the whole disinvestment programme seems to have been executed by the government in a hasty and hesitant manner. Neither the opposition nor the workforce was assured before disinvestment. It was in the year 1998-99 when Prime Minister Atal Bihari Vajpayee made a statement in parliament about disinvestments,

“Disinvestment/Privatisation is the only panacea for ills of loss-making public sector undertakings.”

The opposition response was:

“You can’t sell the family silver to meet your daily expenditure.”

You must keep in mind that the outcome of the privatisation so far has been unsatisfactory. Only 35 per cent of the targeted figures have been attained in the decade 1991-92 to 2001-02. Though 49 companies have been disinvested but in reality, only few have been genuinely privatised. On the other hand countries like Taiwan, Hungary, Thailand, Philippines, Turkey, Poland, Korea, West Asia, Eastern Europe, and even China have been very successful in privatisation. The privatisation plan depends critically on what we plan to do with the money earned through privatisation. To conclude in words of S. Venkitaramanan:

“At least in India, PSUs are surviving as units with government majority. Our effort should therefore, be to make public sector units work efficiently rather than to cook up gimmicks to enable them to get around their impediments by reducing public ownership.”

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