The Government seeks to push ahead with the strategic sales of profit-making PSUs. In this context, discuss whether this decision is strategically sound or not.

Published: December 13, 2019

The cabinet committee on economic affairs (CCEA) has recently approved the strategic disinvestment in BPCL and four other PSUs. 

These profit making public sector undertakings (PSUs) are being considered for sale for the following – 

  • If the government looks to get out of the business
  • If it looks to bring the fiscal deficit down 
  • If it can be better to convert into privately owned business

Navratna PSUs have been shown to give supernormal returns to the public exchequer. The government can sell the loss making ones, instead of selling such high performing PSUs.  

Another factor underlying disinvestment is the fiscal deficit target which stands at 3.3%. Given that revenue collections are not enough, the Government now seeks to sell well running PSUs in a bid to meet the fiscal deficit target. Despite, the one-time dividend from the RBI, the government is far from meeting the deficit target. As, strategic sales and dividends may not be repeated every year, in effect, the country will be back to the same levels of fiscal deficit.

The government can meet its target to cut out wasteful Government expenditure, which however will be unfortunately be cut in the social sector.

Concern over National security – 

National security is also related to the economic power of the Government. The issue of private ownership is related to the strategic issue of national security. Oil is a strategic national resource for India. While China sticks to the state owned control over such resources, India seeks to move in the opposite direction. India looks to build the world’s largest refinery in India, with the help of Saudi Arabia, resulting in ownership and control in foreign hands.  With strategic disinvestments India will lose its control over both crude and refining.

Way forward – 

Financially, the country is worse off, and strategically The nation finds itself in a vulnerable situation both financially and strategically. 

India thus needs to be pragmatic, and consider thinking over in case of strategic national issues so that the control remains with the Government.

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