Mains Paper 3: Economy
Prelims level: Non-Banking Financial Company
Mains level: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. Government Budgeting.
• Demonetization and hastily implemented flawed Goods and Services Tax (GST) Together, these twin disasters robbed millions of their livelihoods and plunged the Indian economy into a prolonged slump that predates the COVID-19 pandemic.
• A badly designed and hastily implemented flawed Goods and Services Tax (GST) and the COVID-19 pandemic, further devastating vast numbers of medium and small enterprises, as well as the vast informal sector of the economy.
• For overcome this Indian economic situation the government of India, intent to offload (by selling or passing it on to someone else) public sector units (PSU), Banks and Non-Banking Financial Company (NBFC) will only result in the long-term loss of public wealth.
Oil taxes, PSU privatization:
• A historically, low international oil prices presented the government an opportunity to encourage a consumption-led revival by passing on these benefits to the people, instead of seizing the opportunity.
• The government continues to squeeze every family’s shrinking budget through excessive petroleum taxes and cesses. In contrast, in 2019, it gave corporates a huge tax cut that did not generate increased investment and succeeded only in burning a ?1.45-lakh crore-sized hole in India’s Budget.
• The government is using the economy’s collapse since the pandemic to rush headlong into its mission. It has announced its intent to become cash rich by selling the family silver, through hasty privatisation, of India’s public sector undertakings (PSUs).
• Executed carefully and strategically, disinvestment (sale of a part of the government’s shares in PSUs) can generate resources for the government, set the right incentives for their managements, and reward the investing public.
• The government has explicitly embraced “privatisation” instead of “disinvestment.” Its choice of language signals its intent.
• The PSU sale is being justified by citing enhanced efficiency and the generation of funds for the government’s welfare programmes. This is a deceptive argument.
• What we are likely to witness in reality is the privatisation of PSU profits, and the nationalisation of private sector losses.
• In the garb of privatisation, valuable assets and profit-making companies will be undervalued and sold to cronies who will make a killing. On the other hand, defaulters with huge loan burdens will be bailed out using public funds.
There are serious long-term consequences being ignored (in LIC case):
• The disinvestment of part of the government’s stake in LIC, and its proposed Initial Public Offer (IPO), are suggestive of clearing the decks to privatise the crown jewel of India’s insurance sector.
• Question arise, will a privatised LIC meet our crucial long-term financing needs for infrastructure projects with long gestation periods.
Impact on social justice:
• The government’s privatisation policy betrays its disdain for social justice. PSUs have historically played an active role in developing backward regions. Importantly, through reservations,
• PSUs have ensured high-quality jobs for Dalits, Adivasis and Other Backward Classes. Once PSUs are privatised or disinvested to below 50% government ownership, reservations for these historically marginalised sections will become history.
Banks in danger:
• The government has presided over an exponential rise in non-performing assets, or NPAs. Gross NPAs under its watch between 2014-15 and 2019-20 were nearly 365% higher than in the last six years (2008-14).
• Wilful defaults have ballooned under the government. And Unable to fix the NPA crisis, the government wants to privatise public sector banks.
• Alongside, Reserve Bank of India is reversing its principled, long-standing opposition to ownership of banks by industrial houses. Such a move will only lead to further concentration of the economy in a few hands, heighten conflict of interest and risk diversion of funds.
Case-by-case strategy needed:
• The PSUs and public sector banks are profitable institutions that aid crucial developmental outcomes. Others require a realignment of incentives or an infusion of capital to effect a profitable turn around.
• To derive maximum value from PSUs for the exchequer, the government should calibrate an appropriate strategy for each individual case. That requires careful, detailed hard work and a commitment to the government’s role as trustee of the nation’s assets.
• Government Unable to manage the nation’s finances, unable to inspire trust in the private sector to boost investment, the government has turned to distress sale of our national assets. The selling assets for short-term gains make up for the long-term loss of public wealth,
• “The government has no business being in business”, The Government needs to be reminded that it is a government that cannot manage the country’s finances that cannot generate jobs that is unable to ensure inclusive growth, that has to sell the nation’s carefully built-up assets to survive that has no business being in government.
• 3. Disinvestment Process supposed to improve efficiency and performances of PSU , provide better service to customers, and do away political interference and raise adequate resources for government to meet it diverse needs.