Disinvestment in India

The NMP is hardly the panacea for growth in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : National Monetisation Pipeline

Mains level : Paper 3- Significance of PSUs

Context

As the government seeks to monetise core assets through National Monetisation Pipeline (NMP), it needs to investigate the key reasons and processes which led to once profit-making public sector assets becoming inefficient and sick businesses.

Background of the MNP

  • The National Monetisation Pipeline (NMP) envisages an aggregate monetisation potential of ₹6-lakh crore through the leasing of core assets of the Central government.
  • These assets are in sectors such as roads, railways, power, oil and gas pipelines, telecom, civil aviation, shipping ports and waterways, mining, food and public distribution, coal, housing and urban affairs etc. over a four-year period (FY2022 to FY2025).
  • Strategic objective of NMP: According to NITI Aayog, the strategic objective of the asset monetisation programme is to unlock the value of investments in public sector assets by tapping private sector capital and efficiencies.
  • Unlocking idle capital: The NMP policy advocates unlocking idle capital from non-strategic/underperforming government owned assets
  • Contribution of core sectors: Eight core industrial sectors that support infrastructures such as coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity have a total weight of nearly 40% in the Index of Industrial Production (IIP).

Reasons for the decline of PSU and why the government should introspect the decline

  • Cost overruns, inter alia, is one of the major reasons.
  • Exceeding project completion time: In some cases, project completion time is exceeded, leading to elevated project cost so much so that either the project itself becomes unviable at the time of its launching or delays its break even point.
  • Lack of optimum input-output ratio: Optimum input-output ratio is seldom observed in a majority of government infrastructural projects leading to their overcapitalisation.
  • A reluctance to implement labour reforms, a lack of inter-ministerial/departmental coordination, poor decision-making, ineffective governance and excessive government control are other reasons for the failure of public infrastructural assets.
  • Need for introspection: It is quite likely that the nation may find itself in a vicious cycle of creating new assets and then monetising the same when they become liabilities for the Government at a later stage.

Importance of public sector enterprises

  • Going by the annual report (2020-2021) of the Department of Public Enterprises there are 256 operationally-run central public sector undertakings (CPSUs), employing about one million people.
  • They posted a net profit of ₹93,294 crore (FY 2019-20).
  • Ratna Status: Out of these, 96 have been conferred the Ratna status (72, 14, and 10 are Miniratnas, Navaratnas, and Maharatna companies, respectively).
  • As India needs to invest about $1.5 trillion on infrastructure development in order to aspire to become $5 trillion economy by the year 2024-25, according to the Economic Survey 2019-20, public enterprises should be in focus.

Steps to strengthen public sector businesses

  • Gati Shakti National Master Plan: Recently, the “Pradhan Mantri Gati Shakti National Master Plan” for multi-modal connectivity was launched.
  • It is essentially a digital platform for information sharing among different Ministries and departments at the Union and State levels.
  • Seamless planning and coordinated execution: The plan aims ‘to synchronise the operations of different departments of 16 Ministries including railways and roadways.
  •  Revamping corporate governance structure of PSUs: As enunciated in the Economic Survey 2020-21, an important step for the Government to take to strengthen public sector businesses would be to completely revamp their corporate governance structure in order to enhance operational autonomy augmented with strong governance practices including listing on stock exchange for greater transparency and accountability.
  • Initiative to boost domestic production of steel: The Economic Survey also highlights the Government’s initiatives as part of the Atmanirbhar Abhiyaan in order to boost domestic production in the steel sector.
  • Under it, four different types of steel are included for incentives under the production linked incentive (PLI) scheme; selling steel to Micro, Small and Medium Enterprises (MSMEs), affiliated to Engineering Export Promotion Council of India at export parity price under the duty drawback scheme of the Directorate General of Foreign Trade (DGFT);
  • It also include measures to provide preference to domestically produced iron and steel in government procurement, where aggregate estimate of iron and steel products exceeds ₹25 crore;
  • Protection of domestic industry from unfair trade practices: Protecting industry from unfair trade through appropriate remedial measures including imposition of anti-dumping duty and countervailing duty on the products on which unfair trade practices were adopted by the other countries.

Conclusion

More such out-of-the-box policy initiatives are needed to rule out public asset monetisation schemes such as the NMP in future.

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