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On the 8th and 9th of January, 2019 several Central Trade Unions called for a two-day nationwide strike to protest against privatisation and anti-labour policies of the Government. The labour unions have relentlessly been waging a war with the Government ever since the 1990s, post LPG era, calling the privatisation measures anti-labour. The recent initiatives by the Government, such as digitisation, divestment, consolidation of banks, ease of doing business and even the Trade Union (Amendment) Bill, 2018 are being viewed by the labour unions as restrictive and attempts to curb the rights of the working class. For the same reasons, this Bandh was also joined by farmers. Against this, we have the private players and foreign investors who are lauding the government’s moves.

While both sides have valid viewpoints, understanding privatisation as a concept, at first, is essential. The Encyclopaedia Britannica defines Privatisation as the “transfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned enterprises may be lifted. Services formerly provided by government may be contracted out.”

Privatisation and divestment can have both, a beneficial or adverse impact on government revenue. Though governments may initiate privatisation in traditionally government-controlled sectors for many reasons, the main objective is to increase efficiency by bringing in private players and professional management. The idea behind this is to introduce competition to erstwhile monopolies, the result being an automatic improvement in the end product and services offered and a demand-driven market. Additionally, private firms’ focus on profit maximisation ensures continued efforts towards research and boosts the overall development of the sector especially in the case of loss-making entities. Even in the profit-making units, proceeds from the strategic sale of assets help meet budgetary deficits at the national level and channelizing those resources towards infrastructural development.

On the other hand, state control has its own advantages. Private firms’ profit motive, may give rise to unfair trade practices such as hoarding, black marketing and profiteering. Such firms are induced to operating in the profitable segments only and as a result, backward regions get ignored, widening the gap of the income distribution. In the short term, employment opportunities and working conditions get affected since private firms often slash down the labour force to optimise costs. Thus, in a heavily privatised economy social issues may tend to take a back seat. This aside, in some critical sectors such as defence (for the sake of the country’s sovereignty) and banking (to safeguard the economic health of the nation) it is essential for the Centre to retain control.

Most efforts at privatisation globally began in the post-socialist era around the late 1980s and early 1990s, when the loss-making public sector enterprises were gradually handed over to private entities.  India’s own privatisation story dates backs to 1991, with the New Economic Policy that contained several reform measures for the public sector. Over the years, privatisation has been undertaken/ proposed in many sectors, primarily heavy metals (Bharat Aluminium Company and Hindustan Zinc Limited), telecom (Videsh Sanchar Nigam Limited), airports and banking.

Examination of some major Privatisation steps in India:

BALCO (Bharat Aluminium Company): In 2001, the Government of India offloaded 51% of its stake in the previously wholly-owned BALCO, to Sterlite Industries India Limited to boost the former’s profitability. The scheme saw much resistance, with distinct factions being formed within the company – employees favouring the scheme and ones opposing it.  Rallies were carried out and the Employee Union even filed a petition with the Supreme Court challenging the decision to divest.

Videsh Sanchar Nigam Limited (VSNL) now Tata Communications: VSNL was a public sector monopoly. From April 1, 2001, the telecom sector was liberalised, and a 45 per cent stake was later divested in favour of the Tata Group. Though the scheme received initial resistance and VSNL saw a massive dip in revenue due to increased competition and lowered prices, the telecom sector itself flourished in the longer term. With a bouquet of service providers to choose from, consumers now have access to innovative plans and services at affordable prices.

Airports: In a meeting in November 2018, the Government decided to privatise six airports – Lucknow, Ahmedabad, Jaipur, Mangaluru, Thiruvanathapuram and Guwahati – through a public-private partnership (PPP) model. The Airports Authority of India (AAI) would continue to hold a minority stake. The bidding process is said to be concluded by February 2019. Similar privatisation in the past of the Delhi, Mumbai, Hyderabad, Bengaluru and Kochi has yielded beneficial results in terms of considerable improvement in the quality of the airport and tourist flow.

Air India: With the privatisation of more than 30 PSUs in the offing, the scheme for Air India draws particular flak. On the recommendations of the NITI Aayog, plans for Air India’s strategic disinvestment and transfer of management have been under discussion since March, 2018. However, the Parliamentary Standing Committee on Transport, Tourism and Culture, in its report recommended that Air India be given some time for its turnaround targets to fall through and that the divestment is deferred by five years. Despite this, on January 9th, 2018, the Union Government went ahead and allowed foreign airlines to invest in Air India, doing away with earlier restrictions. After receiving parliament’s nod for fresh equity infusion to ease its debt burden, the disinvestment will be initiated in the second half of FY 2019-20.

When reaching a conclusion on the effectiveness of privatisation on the basis of past success stories, one needs to evaluate on a case-to-case basis. Privatisation and resulting competition put pressure on the goods and service providers to improve quality and innovate. But it also induces them to cut costs and reduce employment opportunities in the near term, while completely ignoring social development and environmental sustainability. Coca Cola India is a classic case in point. A report by the NGO ActionAid in 2003 talks about how Plachimada was a thriving community before Coca-Cola set up its bottling plant in 1998. Thousands of people worked on those lands earlier while the factory employs only roughly 400. Vegetable crops and coconut groves had to be abandoned because of lack of water. While major turnaround was seen due to privatisation in the Airports and the Telecom sector, the disinvestment in VSNL actually reduced the revenue for its own shareholders. In the case of Air India, the Parliamentary Standing Committee’s main concern was of giving up control of the National Carrier and the country’s pride.

For privatisation schemes to be successfully implemented, it is important, first, that the scheme is carried out in the most transparent manner and rehabilitation of local communities is ensured. Second, regulations preventing the private entities from resorting to activities causing long-term environmental and social damage should be put in place. For the benefits of a mixed economy to properly accrue to the country, control of strategic sectors such as defence should be retained with the government. In moving towards privatisation, careful and properly deliberated steps should be taken rather than plainly letting loose the juggernaut of privatisation.

References:

Brown, P. (2003, July 25). Coca-Cola in India accused of leaving farms parched and land poisoned. The Guardian. Retrieved from: https://www.theguardian.com/environment/2003/jul/25/water.india

Department of Investment and Public Asset Management, Ministry of Finance, Government of India. (2001, December 10). Supreme Court – BALCO. Retrieved from: https://dipam.gov.in/supreme-court-balco

Jose T. (2016, June 14). What is Privatisation? How Privatisation has been implemented in India. Indian Economy. Retrieved from: https://www.indianeconomy.net/splclassroom/what-is-privatization-how-privatization-has-been-implemented-in-india/

Majumdar, A. (2018, November 9). 6 airports get Centre’s nod for privatisation; AAI to hold a minor stake. Business Standard. Retrieved from: https://www.business-standard.com/article/economy-policy/centre-nod-to-privatise-6-airports-under-ppp-model-aai-to-hold-minor-stake-118110801446_1.html

News Click Report, (2018, January 10). BJP Government Moves to Privatise 30 PSUs Including Air India. News Click. Retrieved from: https://www.newsclick.in/bjp-government-moves-privatise-30-psus-including-air-india

PTI. (2019, January 9). Air India privatisation: Govt to initiate disinvestment process in FY 2020, eyes around $1 billion from the sale. Firstpost. Retrieved from: https://www.firstpost.com/business/air-india-privatisation-govt-to-initiate-disinvestment-process-in-fy-2020-eyes-around-1-billion-from-sale-5864161.html

Sridhar V. (2001, March). Battle over Balco. Frontline, The Hindu. Retrieved from: https://frontline.thehindu.com/static/html/fl1806/18060240.htm

Sundar, K. R. S. (2019, January 7). Agenda for the Jan 8-9 Bharat Bandh. The Hindu Business Line. Retrieved from: https://www.thehindubusinessline.com/opinion/agenda-for-the-jan-8-9-bharat-bandh/article25933917.ece

The Editors of Encyclopaedia Britannica. Encyclopaedia Britannica. Retrieved from: https://www.britannica.com/topic/privatization

The Times of India. (2003, February 25). Privatisation of VSNL: Winners and losers. The Times of India, Business. Retrieved from: https://timesofindia.indiatimes.com/business/india-business/Privatisation-of-VSNL-Winners-and-losers/articleshow/38311969.cms

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Written By Devanshee Pitty

A Chartered Accountant by profession, student at heart.

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