Don't think small

Larger PSUs should be privatised too

Last week, the Cabinet Committee on Economic Affairs decided on the first privatisation of a central government-controlled enterprise in over a decade. This has been anticipated for some time, especially since the Union Budget for the ongoing financial year indicated that the government expects to raise Rs 20,500 crore this year from "strategic sales" - code for the sale of enough government equity in an enterprise such that control passes to the private sector. It is true that the previous Budget, too, set aside a large amount in revenue from privatisation that did not materialise. But indications had begun to emerge over the past few months that the government was finally ready to move forward on the privatisation agenda. In another decision, the Cabinet decided to pull the plug on Hindustan Cables, a "sick" public sector undertaking (PSU). This does give credence to recent reports that the government has a multi-pronged plan to deal with loss-making PSUs. Perhaps two dozen of these loss-making PSUs are supposed to be closed down.

The government's activity on privatisation and dealing with sick PSUs may have come late, but it is no less welcome for all that. The PSU that is to be sold off is Bharat Pumps and Compressors, which is based in Allahabad and has for long been making losses. While the presence of a road map on how to deal with sick PSUs that will be chosen to be shut down is heartening, there remains the question of why certain PSUs are chosen for revival and others are not. It has not escaped notice that most of those selected for privatisation are relatively small units. This does not sit well with the scale of the government's ambition in other areas. Prime Minister Narendra Modi has repeatedly stressed that he intends to bring about transformative change. That would necessarily imply dealing with the big, obvious millstones around the government's neck. Air India is one such example. There is little or no hope of a permanent revival of such companies, nor is there any real reason for their continued existence. The government also understands, reportedly, that running hotels is not its job. Given these facts, it is unclear why the action on privatisation is limited only to very small enterprises.

True, getting out of bigger state-owned enterprises is a tough task. Since there are a lot of employees involved, there may not be ready buyers available. Selling a big PSU with significant market share has implications for competition policy - and thus selling to a big domestic player could well attract a charge of crony capitalism. In addition, in some markets, it is not always easy to discern the true value of a large state-run company to its major competitor, which would again open the door to questions about cronyism and sweetheart deals. Nor is selling to a foreign player likely to blunt criticism. Nobody can claim, therefore, that real privatisation is an easy thing to pull off. But it is the only way forward if the government wants to truly transform its role in the economy.