DISINVESTMENT OF PUBLIC SECTOR - BPCL, CONCOR, SCI, THDCIL, NEEPCO

DISINVESTMENT OF PUBLIC SECTOR

As we all know that on 20th Nov 2019, the Cabinet Committeeon Economic Affair (CCEA) has given “In-principle’ approval for the strategic disinvestment of FIVE Central Public Sectors Enterprises (CPSEs) including majority stakes in blue-chip Oil Company Bharat petroleum Corporation Limited (BPCL) and Shipping Corporation of India (SCI). 

Let us analyze in this article by looking at both the merits and the demerits and let us find out when disinvestment is good and bad.

So before we get into each PSU detail we must need to understand what is Disinvestment?

What is Disinvestment?

Disinvestment ability sale or liquidation of property by way of the government, normally Central and nation public zone enterprises, projects, or different constant assets. The authorities undertake disinvestment to decrease the financial burden on the exchequer, or to elevate cash for assembly particular needs, such as to bridge the income shortfall from different ordinary sources. In some cases, disinvestment may additionally be completed to privatize assets. However, now not all disinvestment is privatization. Some of the advantages of disinvestment are that it can be useful in the long-term boom of the country; it permits the authorities and even the corporation to minimize debt. Disinvestment approves a large share of PSU possession in the open market, which in flip permits for the improvement of a sturdy capital market in India.

Let us see Indulging in privatization or not is often related to political ideology the right-wing economists worldwide, in general, favor privatization and the left-wing economists, in general, are against it.  Now, if anything gets classified into left-wing or right-wing so clearly, then there's no simple answer to that both sides have their own arguments for favoring it or being against it Let is look at it from a neutral point of view.

As we know there are two types of companies - PrivateLimited Company & Public Limited Company but what are the differences between the two and purpose of established as Private & Public?

The purpose of establishing a private company is to earn profits but where does that profit go?

Obviously, to the shareholders of the company but who are these shareholders? None other than the owner of the private limited company, the profit earns by private limited goes to the shareholders/owners of the company.

The main purpose of a public company is not to earn profit but to impart welfare for the public. Now that earning money serves as a better motivation for people to work and the government can use it for the citizens of the country.

It is always believed that private companies are more efficient and growth-oriented, their employees work more effectively and work harder because the benefit of money is discernible, also in order to remain profitable the private companies take a lot of decision that a public company would never do as the public benefit is not such a great motivation for the employees, It is believed that public companies are lazy and their employees do not work well. Their customer service is not that great, especially in India The ones in favor of privatization maintain that this is a free market economy

Anyone can come up, create their personal agency and compete with the rest of the companies If one area has been privatized, for example, Airlines have been privatized, So everybody can come up and create their very own airways and this would beautify competition.
An amplify in competition would imply that all the companies would attempt and provide higher purchaser services, make sure decrease expenses for the clients and at the equal time, make a earnings too. So all people advantages here. This is a simple argument at the back of privatization.

Why people are against privatization?

Point 1 - The profit being earned is ending up in the hands of a few people, the public isn't benefited

Point 2 - If profit remains the sole motive behind any service, then it can destroy an entire industry

The best example of Privatization is the “American school system”.  But Why America privatized the Schools?

The First reason, the private schools were increased their costs drastically due to which it became unaffordable for the economically weaker children.  All the private schools started to do the same because making profits was the main motive.

The Second reason, the rich got a lot of options to study but studies became unaffordable for the middle and the poor class, ff a common man wants to study in the American Universities, then they have to take loans worth lakhs, the ones who are not able to secure a scholarship.

The entire education industry has been destroyed in away.

Disadvantages of Privatization

If foreign companies get the opportunity to indulge in privatization in your country, this would mean all the profits earned by the company would be siphoned off abroad

Even though we are told that competition is created in a free market that anyone would be allowed to set up their own company but in reality what happens is that monopolies begin to get formed. 

For example, a new telecom company sets up its business, which bribed our politicians and coerced them into making laws that would put the rest of the telephone companies at a huge disadvantage and only one company makes profits.

Gradually, that company becomes a monopoly and there is no competition against it. Becoming a monopoly would mean that whatever prices the company decided upon; the customers would be forced to pay that because they would have no other option.

All the company profit would go into a few hands this is one of the reasons that in most developed countries, the government makes better laws to encourage competition and prevent the formation of monopolies.

But...

How to prevent monopolies?

The government has to put the price cap so that the customers wouldn’t be forced by the private companies to pay the higher than that.

For example Pharmaceutical Industry, we have mostly private players in Pharmaceutical and they use the same formula to make medicines for a particular disease but you might have noticed that the price is different from one company to another company. Government has to set an upper price cap on medicines so even a private company cannot set prices higher than that, which would harm the consumers Secondly, the government could promote more companies to come into that industry so that competition is created

Looking at all these benefits and drawbacks, I'd like to tell you when it is all right to indulge in privatization and when we should not indulge in privatization?

The most important and basic rule, wherever there are higher chances of monopoly, we should not indulge in privatization.

Especially, the natural resources companies – Oil & Natural Gas Corporation (ONGC) & Bharat Petroleum Corporation (BPCL) which are the property of the entire country. Selling them would mean selling a part of the country away.  Government giving an opportunity to others to make a profit off of the resources of pours country like ONGC and Bharat Petroleum, these industries is impossible for the common men to enter and compete with the huge businessmen, who have already established this business

Selling off profitable public sector companies does not make sense and would mean the country could incur losses in the long term and a monopoly can possibly be created. We should not indulge in privatization

If privatization is done in healthcare, medicines & hospitals cost would be increased because the main objectives of private players are earning profit. The poor people will not survive and get proper healthcare benefit in such a case as they would have no money to pay the hospitals

Wherever it is difficult to make rules and regulations, we should avoid privatization

If corruption is rampant somewhere, then indulging in privatization or not is no solution. It would make no difference because if corruption is happening, then it can happen with both privatized as well as public sector companies.

The public sector employees are accused of not doing their work properly; they take bribes while they work, they take their Job granted, their salary will be credited in time and hence do not work well there is corruption.

 Bribes are also taken during customer service or it is extremely delayed

The same thing ensues in private companies. A common employee is not corrupt in private companies but their top bosses might be corrupt. They might bribe the politicians to create a monopoly for themselves. So corruption can happen both ways.

Don't ever treat corruption as the reason behind privatization or not.

On 20^th Nov 2019, the Cabinet Committee on Economic Affair (CCEA) has given “In-principle’ approval for the strategic disinvestment of FIVE Central Public Sectors Enterprises (CPSEs)

Bharat Petroleum Corporation Limited (BPCL)

• Government of India shareholding of 53.29% in BPCL (except its equity shareholding of 61.65% in Numaligarh Refinery Limited (NRL) and administration manage thereon) alongside with switch of administration control to a strategic buyer
• BPCL’s shareholding of 61.65% in NRL alongside with switch of administration control to Central Public Sectors Enterprises (CPSEs) running in the Oil and Gas Sector

Shipping Corporation of India Limited(SCI)

• Government of India shareholding of 63.75% in Shipping Corporation of India alongside with switch of administration control to a strategic buyer

Container Corporation of India Limited (CONCOR)

• Government of India shareholding of 30.8% (out of 54.8% equity presently held by the Government of India) alongside with switch of administration control to a strategic buyer

THDC India Limited (THDCIL)

• Government of India shareholding of 74.23% in THDCIL alongside with switch of administration control to an identified CPSE strategic buyer, namely, NTPC in modification of the earlier decision of Cabinet Committee on Economic Affair (CCEA) dated 28th December 2018 for listing of THDCIL

North Eastern Electric Power Corporation Limited (NEEPCO)

• Government of India shareholding of 100% in NEEPCO alongside with switch of administration control to an identified CPSE strategic buyer, namely, NTPC in modification of the earlier decision of Cabinet Committee on Economic Affair (CCEA) dated 12th April 2017 for listing of NEEPCO

Let me know your thoughts on disinvestment decision in comment box.