The benefits of privatisation

It will allow the State to reassign funds, monetise assets, and improve the competitiveness of firms

Indian governments, irrespective of their hue, have had a troubled relationship with privatisation. Much of this, on the basis of the history of privatisation, appeared to stem from a lack of belief in it. Sure, governments divested some of their stake in State-owned companies, but these were rarely controlling (or even significant) ones; worse, a combination of market factors, timing, and the nature of companies in which these stakes were being sold often meant that another healthy Stateowned company was usually the last-resort buyer. It is difficult to find too many instances of real privatisation in India ever since the idea gained currency in the late 1990s for one reason: There have been very few (Balco and VSNL are the ones usually named).

Which is why Prime Minister (PM) Narendra Modi’s repeated emphasis on privatisation — a handful of times in speeches in the past few weeks — is both important and welcome. These come after finance minister Nirmala Sitharaman mentioned privatisation, as well as monetisation of the assets of State-owned companies, in the Union Budget, which also went far enough to mention the privatisation of two State-owned banks. Clearly, there is a plan, and the prime minister’s repeated references to it can be seen as both a way to get wider buy-in as well as an indication of the government’s commitment.

This is a good move for three reasons. The first, of course, is that governments have no business being in business. The State’s capital can be better used elsewhere. The second is that privatisation, more often than not, improves competitiveness (perhaps even making a business globally competitive), quality, and expands the choice available to consumers. India has indicated that State-owned companies in all, but four strategically important sectors will be privatised. And even in these four, the number of State-owned companies will be kept “at a minimum”. The third is the money the State can hope to raise from privatisation. The government’s plan to monetise its assets will help it “achieve ₹2.5 trillion investment,” the PM said this week. The government has to find a way to tackle multiple challenges to see this through. It will have to address political opposition to efforts to privatise Stateowned banks and companies. It will have to deal with employee unions — which, at least in the case of banks, are powerful. And the government will have to come up with a fair-and-transparent process, so that it can finally make some headway and improve India’s privatisation track record.