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Context

• In the biggest privatization drive, the Union Cabinet has approved sale of the government’s stake to cut shareholding in select public sector firms below 51% to boost revenue collections that have been hit by slowing economy.
• These CPSE’s include blue-chip oil firm Bharat Petroleum Corporation Limited (BPCL), Shipping Corporation of India (SCI) and on-land cargo mover Container Corporation of India (Concor).

Central Public Sector Enterprises (CPSEs)

• A state-owned enterprise in India is called a public sector undertaking (PSU) or a public sector enterprise.
• These companies are owned by the union government of India or one of the many state or territorial governments or both.
• The company stock needs to be majority-owned by the government to be a PSU.
• PSUs strictly may be classified as central public sector enterprises (CPSEs) or state level public enterprises (SLPEs).
• CPSEs are companies in which the direct holding of the Central Government or other CPSEs is 51% or more.
• They are administered by the Ministry of Heavy Industries and Public Enterprises.

What is Disinvestment?

• Privatization involves transforming the ownership of a public sector business to the private sector known as strategic buyer.
• Disinvestment is also a transformation process that happens while retaining 26% or, in some contexts, 51% percent of share right (i.e. the voting power) with the public sector organization.
• Strategic disinvestment implies the sale of portion of the Government share holding of a central public sector enterprise (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.

Objectives of strategic disinvestment

The following main objectives of disinvestment were outlined:

• To reduce the financial burden on the Government.
• To improve public finances.
• To introduce, competition and market discipline.
• To fund growth.
• To encourage wider share of ownership.
• To depoliticize non-essential services.

When did the disinvestment process begin in India?

• The disinvestment process in India began in the year 1991-92, with 31 selected PSUs disinvested for Rs.3,038 crore.
• In August 1996, the Disinvestment Commission, chaired by G V Ramakrishna was set up to advice, supervise, monitor and publicize gradual disinvestment of Indian PSUs.

Immediate causes

• The new economic policy initiated in July 1991 clearly indicated that PSUs had shown a very negative rate of return on capital employed.
• Inefficient PSUs had become and were continuing to be a drag on the Government’s resources turning to be more of liabilities to the Government than being assets.
• In relation to the capital employed, the levels of profits were too low. Of the various factors responsible for low profits in the PSUs, the following were identified as particularly important:

1. Price policy of public sector undertakings
2. Under–utilization of capacity
3. Problems related to planning and construction of projects
4. Problems of labour, personnel and management
5. Lack of autonomy

Criterion for disinvestment

The Union Government has mandated the NITI Aayog to identify the CPSEs that require disinvestment. The NITI Aayog identifies such CPSEs based on the certain criteria laid down by the Central Government itself. The criteria are mentioned below:

• National Security
• Sovereign function at arm’s length
• Market Imperfections and Public Purpose
• Profitability or loss of the CPSEs is not considered as a relevant criterion.

 Issues with  PSUs through years

Inherent flaws in PSU’s

• Public sector undertakings were established in India as a part of mixed economy with the objective of providing necessary infrastructure for the fast growth of economy & to safeguard against monopoly of industrialist community.
• However, the entire mechanism did not turn out as efficient as it ought to be, all thanks to the prevailing hierarchy and bureaucracy.
• Inefficient PSU’s were largely responsible for the macro-economic crisis faced by India during 1980’s.

Lack of autonomy

• Lack of autonomy, political interference, nepotism & corruption has further deteriorated the situation.
• For instance, the head of a PSU is appointed by the Government, who in turn appoints all employees who play major roles in the organization.
• So directly or indirectly the Government itself controls the appointment of all manpower in these organizations.

Revenue losses

• Due to the expenditure on items such as interest payments, wages and salaries of PSU employees and subsidies, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure.
• Additionally, the continued existence of the PSEs is forcing the Government to commit further resources for the sustenance of many non-viable PSEs.
• All this makes Disinvestment of the Government stake in the PSEs absolutely imperative.

Lack of Competitiveness

• In an era of LPG industrial competitiveness has especially assumed an important role, necessitating privatization or disinvestment of PSUs.
• Though it is claimed by many that ownership isn’t all that an important indicator of an organization’s functioning as is its management, it has been proven by an ample number of examples that private controls of an organization bring about drastic changes in its effectiveness.
• This is especially true today when competitiveness is essential not only for leading the industry but for mere survival.

Poor performance

• Despite the huge injection of funds in the past decades, the functioning of many public sector units (PSUs) has traditionally been characterized by poor management, slow decision-making procedures, lack of accountability, low productivity, unsatisfactory quality of goods, excessive manpower utilization etc.
• However, with increasing privatization, disinvestment or change of control into the hands of professional managers, many organizations have seen the tables turn.
• Some examples are IRCTC and CRIS to facilitate the functioning of Indian Railways etc.

Importance of Disinvestment

• Disinvestment also assumes significance due to the prevalence of an increasingly competitive environment, which makes it difficult for many PSUs to operate profitably.
• This leads to a rapid erosion of the value of the public assets making it critical to disinvest early to realize a high value.
• Presently, the Government has about Rs. 2 lakh crore locked up in PSUs.
• Disinvestment of the Government stake is, thus, far too significant. The importance of disinvestment lies in the utilization of funds for:

1. Financing the increasing fiscal deficit
2. Financing large-scale infrastructure development
3. For investing in the economy to encourage spending
4. For retiring Government debt- Almost 40-45% of the Centre’s revenue receipts go towards repaying public
   debt/interest
5. For social programs like health and education

Implications on Economy

• If India wants a continuous increased growth, it has to scale to the next level of performance. This is not an option but a necessity and disinvestment is a tool to get there.
• Increased population, unemployment, and poverty levels are the main reasons why India needs to scale.
• It needs a 10% rate of growth every year in its GDP to continue to be competitive with China and potential emergent nations in South East Asia.

Successful examples

• In the context of macroeconomics, time has shown us how countries like Chile, the UK, China, New Zealand, Poland successfully used disinvestment to achieve new economic heights.
• Many countries used disinvestment as a sure means of restoring budgetary balance & to revive growth on a sustainable basis after facing an economic crisis in the 80s.
• Analysis of these countries before & after disinvestment shows that market-driven economies are more efficient than the state-planned economies

Attracting foreign investments

• Disinvestment shows that govt means business which will attract FDI, FII to finance projects in India.
• It will allow PSU to raise capital to fund their expansion plans and improve resource allocation in the economy. It will allow the government to stimulate the economy while resorting to less debt market borrowing.
• Private borrowers won’t be crowded out of the markets by the government and will have to pay less to borrow from the open market.

Democratization of industries

• Disinvestment will be extremely positive for the Indian equity markets and the economy.
• It will also draw a lot of domestic money into the markets.
• Thus it would encourage citizens’ participation in the management of public enterprises and improve the capitalization of stock markets.

Concerns over Disinvestment in India:

• Process of disinvestment is not favoured socially as it is against the interest of socially disadvantageous people.
• Political pressure from left and opposition.
• Loss-making units don’t attract investment so easily.
• Over the years, the policy of divestment has increasingly become a tool to raise resources to cover the fiscal deficit with little focus on market discipline or strategic objective.
• Sometimes the emergence of private monopolies, consumer welfare will be reduced.
• It is argued that mere change of ownership, from public to private, does not ensure higher efficiency and productivity.
• It may lead to retrenchment of workers who will be deprived of the means of their livelihood.
• Private sector, governed as they are by the profit motive, has a tendency to use capital-intensive techniques which will worsen the unemployment problem in India.
• Fiscal 2016-17 is the seventh year in a row where the government is not meeting the disinvestment target fixed in the Budget.

Why criticism over the recent move of disinvestment?

• BPCL is a profitable refiner and oil marketing company that has consistently paid a healthy dividend.
• It has also made investments in upstream energy resources and holds interests in overseas hydrocarbon blocks.

• With the dismal track record of several PSUs, the Centre cannot be blamed for the decision to divest.
•  Times have changed and the economy now has other engines of growth. But it should not be hastily inferred that all PSUs have failed us.
• Let not the ideological blinkers like ‘public sector is bad’ and ‘privatization is the panacea’ unintelligible reality.
• But when a sterling company like BPCL is also being offered for ‘strategic disinvestment’  the nation naturally expects to know the strategy behind it.

The Way Ahead: What should be the Objectives of Public Sector Enterprises Disinvestment and Restructuring?

The means of achieving these objectives involve considerations such as the injection of greater competition into the industrial economy in order to foster a healthier market structure.

Conclusion

 

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References

Disinvestment Policy in India.

http://www.bsepsu.com/importance-disinvestment.asp

https://www.business-standard.com/article/markets/select-psus-rally-on-in-principle-nod-for-strategic-disinvestment-119112000797_1.html

https://www.ukessays.com/essays/economics/impact-of-disinvestment-for-indian-economy-economics-essay.php

https://archive.india.gov.in/spotlight/spotlight_archive.php?id=78

https://www.newindianexpress.com/opinions/2019/dec/06/why-is-the-govt-privatising-profitable-psus-2072124.html

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Context

From December 1, lanes on NH toll plazas across India has started accepting toll only through FASTag. One hybrid lane will continue to accept cash in addition to being tag-enabled.

What is ‘FASTag’?

• FASTags are stickers that are affixed to the windscreen of vehicles and use Radio Frequency Identification (RFID) technology to enable digital, contactless payment of tolls without having to stop at toll gates.
• The tags are linked to bank accounts and other payment methods.
• As a car crosses a toll plaza, the amount is automatically deducted, and a notification is sent to the registered mobile phone number.

How does it work?

• The device employs Radio Frequency Identification (RFID) technology for payments directly from the prepaid or savings account linked to it.
• It is affixed on the windscreen, so the vehicle can drive through plazas without stopping.
• RFID technology is similar to that used in transport access-control systems, like Metro smart card.
• If the tag is linked to a prepaid account like a wallet, or a debit/credit card, then owners need to recharge/top up the tag.
• If it is linked to a savings account, rthen money will get deducted automatically after the balance goes below a pre-defined threshold.
• Once a vehicle crosses the toll, the owner will get an SMS alert on the deduction. In that it is like a prepaid e-wallet.

How can one buy it?

• E-commerce portals like Amazon and PayTM sell these tags issued by various banks.
• Places, where these counters are set up, include Road Transport Authority offices, transport hubs, bank branches, and selected petrol pumps.
• A FASTag bought from NHAI comes with a one-time fee of Rs 100 besides a refundable security deposit of Rs 150.
• Apart from the currently free tags at NHAI booths, there is also a cashback of 2.5 per cent on FASTag transactions as an offer.
• In the tag taken from NHAI, the Rs 150 security deposit, which the government is bearing as a promotion, comes back to the user as wallet value if the FASTag is linked to the NHAI e-wallet in the “My FASTag app” mobile app.
• So in this particular scheme, the user gets Rs 150 back without even paying it.

Penalties

• A FASTag is valid for five years, and can be recharged as and when required.
• Vehicles entering FASTag lanes without FASTag will be charged twice the toll amount.

Will those living close to toll roads did not end up paying more frequently?

• As per a government notification, users living within 10 km of a toll plaza can avail a concession on toll to be paid via FASTag.
• They need to submit proof of residence and nearest point-of-sale location to validate.
• Once the address is verified, the concession is ensured via FASTag affixed on the vehicle.

Benefits of Fastags

• FASTag will help to reduce the waiting time at the plaza
• Accommodating the increasing traffic without additional lanes
• Eliminating the acceleration and idling, harmful vehicular emissions and air using FASTag
• Reducing congestion around plazas
• Pollution reduction
• To save fuel for the future which will also help to reduce the operating cost of the vehicles
• To provide customers the flexibility of paying their plaza bill’s with RFID Tag
• Reduce cash handling which aids in enhanced audit control by centralizing user accounts
• Enhancing data collection, information such as vehicle count of the day

Is it working smoothly?

• The tags sold by banks are not “bank-neutral”.
• A FASTag bought from one bank can be recharged through that particular bank only and not through other banks.
• However, tags sold/distributed by NHAI are bank-neutral as one can use any bank account to recharge/top up the value in the tag.

What about state highways?

• Under a new “One Nation One FASTag” scheme, the NHAI is trying to get states on board so that one tag can be used seamlessly across highways, irrespective of whether it is the state or the Centre that owns/manages it.
• Recently as part of a pilot, Karnataka, Andhra Pradesh and Haryana signed MoUs with the Centre to accept FASTags in state highways also.

 

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References

https://www.civilsdaily.com/news/explained-fastags/

https://timesofindia.indiatimes.com/travel/destinations/fastags-in-india-why-is-it-mandatory-for-your-vehicles-to-have-one-now/as72333185.cms

https://www.indiatoday.in/information/story/fastag-know-how-works-benefits-details-1622964-2019-11-27