Government's Role in Business and Disinvestment Policy
The Prime Minister’s statement, “The government has no business to be in business,” during a 2021 webinar underscored a policy shift towards disinvestment in both strategic and non-strategic sectors. An ambitious disinvestment target of ₹1.75 trillion was set for FY22. However, the actual divestment activity has been minimal, showing a significant deviation from the proposed policy.
Objectives and Challenges of Disinvestment
- Revenue Generation: Initially, disinvestment aimed to provide an additional revenue source to address the revenue deficit.
- Government's Capability: The government faces overwhelming responsibilities and must prioritize essential functions like defense, law enforcement, and primary education, which cannot be left to market forces.
- Historical Context: Post-Independence PSEs were set up under Nehruvian socialism to control key industries. The shift towards a free market began post-1991.
- Limitations:
- Bureaucratic risk averseness and attention to processes rather than outcomes.
- Multiple accountabilities hinder the government's ability to manage commercial enterprises effectively.
Structural and Political Barriers
- Disinvestment Department: Established in 1999, with significant efforts seen during the Vajpayee government (1999-2004).
- Resistance to Change:
- Reluctance from administrative ministries to relinquish control.
- Fear of allegations regarding underselling assets.
- Misuse of Strategic Reasons: Terms like "strategic" are often used to delay or avoid divestment.
Impact on Governance and Resources
- The government’s involvement in corporate activities is extensive, with institutions like the Public Enterprises Selection Board (PESB) and the Appointments Committee exclusively managing PSE boards.
- Reducing government functions tied to PSEs can free up resources, aligning with the goal of "minimizing government."
Recent Trends and Concerns
- Increasing government equity and loan injections into PSEs require critical examination of their effectiveness and performance indicators.
- A significant portion of the capex in FY25, over 50% of ₹10.2 trillion, is directed towards PSEs, raising concerns about expenditure quality.
Recommendations for Effective Disinvestment
- Return to the 2021 disinvestment policy with a focus on privatizing selected PSEs.
- Privatization can enhance PSEs’ working culture and investor trust and reduce the government’s administrative burden.
- The disinvestment strategy should focus on these broader goals rather than merely generating receipts.