Answer Writing Practice for UPSC IAS & UPPSC Mains Exam: Paper - IV (General Studies – III) - 25 July 2020

Answer Writing Practice for UPSC IAS Mains Exam


Answer Writing Practice for UPSC IAS & UPPSC Mains Exam


UPSC Syllabus:

  • Paper-IV: General Studies -III (Technology, Economic Development, Bio-diversity, Environment, Security and Disaster Management)

Q. Analyze the rationale behind the Strategic Disinvestment of the various Public Sector Undertakings (PSUs) by the Government of India. (250 words)

Model Answer:

  • Why in News?
  • Introduction: What is Strategic Disinvestment?
  • Reasons for the strategic disinvestment of the various Public Sector Undertakings (PSUs) by the Government of India
  • Implications of the strategic disinvestment
  • Conclusion

Introduction:

Disinvestment is a preferred option in case of an unprecedented fiscal deficit or during a crisis in the economy. Strategic Disinvestment implies the sale of a substantial portion of the Government shareholding of a central public sector enterprise (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.

Reasons for the strategic disinvestment of the various Public Sector Undertakings (PSUs) by the Government of India:

  • Strategic disinvestment would lead to an infusion of capital, technology up-gradation and efficient management This would help the government to monetize its investment in Central Public Sector Enterprises.
  • The proceeds from these stake sales will help the Centre move closer to achieving its disinvestment target of Rs 1.05 lakh crore for this year.
  • As per data from the Department of Investment and Public Asset Management, the government has been able to garner 16.5 % of its budgeted disinvestment target of the year.
  • The government’s role is to facilitate a healthy business environment but the core competence of a government does not lie in selling fuel or steel at a profit. This is one of the reasons that disinvestment is often a priority item.
  • The government always has to spend more than they earn through taxes and other means. Such disinvestment is a welcome step as it brings additional income to the government exchequer.

Implications of the strategic disinvestment:

  • Strategic disinvestment of the five public sector enterprises is best described as an expedient exit, in an attempt to ensure the actualization of the policy approach. As in this year’s budget speech, it was announced that strategic disinvestment would “remain a priority”.
  • The aim of the disinvestment of the government is not perfectly clear. A profitable refiner and oil marketing company that has consistently paid a healthy dividend has been disinvestment.
  • The companies have also made investments in upstream energy resources and hold interests in overseas hydrocarbon blocks. To that extent, a full sale now deprives the government of all upside potential.
  • The disinvestment move is already facing protests from PSU insiders who are equating the disinvestment of profit-making PSUs to the ‘sale of family’s silver’ and flagging the risk of cronyism.

Conclusion:

To maximize value from this route of disinvestment, the government should draw a more ambitious, better laid out, medium-term plan for disinvestment. The PSUs strategic sale process must be freed from the tyranny of over-ambitious disinvestment targets and fiscal year deadlines.