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Posted on February 10, 2010 | View 1067 | Comment : 31

Moving On To Privatisation

Economist Vijay Kelkar’s thoughts on disinvestment, published on this page on February 2, merit attention, in the context of the government’s decision to mop up large amounts through disinvestment, and the corporate governance norm that 25%, at least, of a listed company’s equity must be owned by the public. He calls for dynamic determination of sectors where public ownership would be desirable, these sectors changing, over time, with the growth of both the private sector’s entrepreneurial ability and the government’s regulatory capacity. In sectors where both are well developed, the government can exit completely, leading to privatisation. This is eminently sensible. Dr Kelkar goes beyond this, to suggest that the disinvestment programme could convert large public sector enterprises (PSEs) into widely-held, professionally-managed companies. We endorse this view as well.

There is no reason why SAIL or BSNL would not be run as successfully by professional managers as Larsen & Toubro. Similarly, many public sector banks that already are extremely well run could perform even better, once released from government ownership and often insidious control. The resources raised by selling stake in PSEs to a broad mass of shareholders could be ploughed into areas and sectors that are essential for the economy but not viable or attractive for the private sector. Dr Kelkar suggests limiting accumulation of shares by any individual entity or a related set of entities for a few years, to allow a professional management team enough room to settle down in the job of running the company, without worrying about takeovers. The downside of is that retail investors would be denied a swift, hugely-profitable exit. But this would not be such a disaster for long-term investors — their upside could be considerable when the moratorium on acquisition goes and people start accumulating shares.
In theory, the nature of ownership should not affect the performance of a professionally-managed company. In practice, India’s political economy foists huge inefficiencies on the PSEs. Privatised, they would shed these constraints and flourish under professional management, supervised by shareholders, the market and regulators.

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Comments (31)

  • I Agree with the view expressed.A professional who as spent his entire career i PSUs ,I strongly believe Govt has no business to run any Business.The corruption and Political interference are the main reasons for inefficiency in PSUs.

    Posted by arijit ghosh | 10 Mar, 2010


    Posted by M.K.GUPTA , OFFICER at IR | 24 Feb, 2010

  • To take on the massive task of nation building the budgetary provision shall be at least 10 times of what has been in the past year. Government has to find out ways and means to generate the wealth for this.
    Disinvestment of government owned business and service industries is thought to be the most pertinent method. Definitely, this will help to some extent, though it has its attendant repercussion in the socio-economic front. It also ends up in amassing wealth by the private industrial houses; a small portion of it only may be pumped back into the projects needed for national growth.
    But what I would suggest is a diametrically opposite proposal. In every major private company of over 1000 crore capital out lay in India, Government should have a 10 per stake by way of owning ...See More

    Posted by Abraham Paul,MD at FCOMNET - Futuregroups|20 Feb, 2010

  • To take on the massive task of nation building the budgetary provision shall be at least 10 times of what has been in the past year. Government has to find out ways and means to generate the wealth to this.
    Disinvestment of government owned business and service industries is thought to be the most pertinent method. Definitely, this will help to some extent, though it has its attendant repercussion in the socio-economic front. It also ends up the amassing wealth by the private industrial houses a small portion of it only may be pumped back into the projects needed for national growth.
    But what I would suggest is a diametrically opposite proposal. In every major private company of over 1000 crore capital out lay in India, Government should have a 10 per stake by way of owning ...See More

    Posted by Abraham Paul , Ex. V.P. Technical Sales. at SPCNL, Siemens ICN | 20 Feb, 2010

  • Looking at the present operating scenario in our country the scales are definitely tilted in favour of privatisation.However, as quite a few of the peer group members have already opined, privatisation may not be the only answer.We already have examples of various public sector units working at the same level,if not better, than quite a few professionally managed private units.Perhaps the answer lies not in privatising an existing PSU but to allow private operators to start similar operation on a smaller scale.This may eventually shake up the lethargic public sector unit and perk it up to meet the competition from the private operators................. did I hear someone say High Hopes !!

    Posted by Arun B Lal | 17 Feb, 2010

  • Though Privatization is recommended, we should be very conscious in Utility sectors where our huge population depends on Government incentives. Why is our government not moving to privatize our non-priority service sectors where common man has to struggle to get their services without bribery? Moreover, political influence in public sector operation is to be totally stopped. I strongly feel Public Sector managers can perform even better than Private sectors' if they are given full freedom. Government should formulate a strategy to eliminate Political influence in Public Sector

    Posted by A.M.Ashroff , Manager - Projects at Zamil Steel | 16 Feb, 2010

  • The country which is less governed is best governed.The government has no business to be in business,.I recently attentended a seminar in which a regulating authority sheepishly admitted that more than 60% of the companies in maharashtra have not filed their annual accounts and annual reports and he could do nothing about it.People are talking about corporate governance for the last 2 years and have done anything except some voluntary guidelines this and that..cant they not form a special group , consisting of chartered accountants ,company secretaries cost accountants and dynamic lawyers and empower them to clear this rut in a targeted time of say 3-5 years this pending submission of annual accounts & returns.

    Posted by venkataramanan thiru,|16 Feb, 2010

  • Except Defence,Income Tax and certain services IAS/IPS/IFS; everything should go for privitisation with a rider on checking its performance and functioning by Government through surprise checks. When MNC firms can function in a befitting manner and the privitisation can also do vital area in development of India. Everybody should be accountable for his work and one should be in a position to explain with clarity. Unless, we introduce certain ethics and values; the development can be perceived in a mighty way. All PSEs are not functioning the expected way due to lack responsibility and authority. The Constitution needs to be amended with zero poverty in a span of ten years; which can help India to reach as the Developed Country as envisaged in 2020.

    Posted by Gp Capt K Surya Prakash , Gp Cdr Plg, Projects and Engg Coord at 3 BRD AF Stn, Indian Air Force | 16 Feb, 2010

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    Posted by PC , OWNER CHAIRMAN at IT | 12 Feb, 2010

  • To lap up any thing western in foods, thoughts or concept is a fallout of of the long Colonial rule and the subserviant attitude most Indians display. Instead of upgrading the performance of Psu\'s, which are of national pride, we resort to the trendy jargon of Privitisation as an easy way out. Are we solemnly declaring that Govt enterprises could not be run well in lines with private enterprises despite the advantages of technology and human resources at our disposal. Lack of political will , committment to public, honesty and integrity of the people concerned with such psus ,are the only factors, I find as reasons for handing over to private.

    Posted by ram mohan kenath , CEO at Dhanya consumers pvt ltd. | 12 Feb, 2010

  • Privatisation is the only way to go. Besides releasing large sums of money for further developmental activities, it will also bring in competition and transparency in working of the PSU's and make them more accountable. This will increase profitability and add value to the organisation.

    Posted by M K Mohta,|12 Feb, 2010

  • I agree to Privatisation but would still ask the Government as to why within their framework-why can't a man be as productive as in private jobs-I think all we need to understand is it the attitude of The Govt, The people and a very simple trick can change it all and that is Accountability. The rules of the Game needs a Change-otherwise privatisation delivers is "A BIG MYTH". Every Human is same-its the environment he is offered makes the difference.

    Posted by JASVINDER SINGH JOLLY,COO at Silvercity Group of Companies|12 Feb, 2010

  • Government must not think of privatization as a easy solution. There are excellent run PSU's performing as on now, they could be a part of expanding and partnering with not so well to do, companies. The idea of taking over or partnering by the PSU -by themselves, can retain greater ethics and central leadership. Merely calling up Private enterprise will not do.

    Posted by subramanya ramarao,Associate Partner at Hero Mindmine Ltd|11 Feb, 2010

  • Fortunately, I have been government and had chance to understand the Disinvestments issues as well very closely.

    Again., coming to professional management , before we discuss and debate , the structure and working environment of both publically and privately managed professional companies should be kept in view, needless to mention the names. Many public enterprises are performing at their best even being public and a govt. major. You cant debate on professionalism of any manager in public sector or its leadership.
    ...See More

    Posted by PRAMOD KUMAR SINHA | 11 Feb, 2010

  • Privatisation requires strategic control which demands technological excellence, high level of corporate governance and complete deregulation from Govt control. Proceeds from disinvestment should be used in reducing fiscal deficit also as reduction of revenue deficit is required before implementation of GST.

    Posted by Shome suvra Chakraborty | 11 Feb, 2010

  • With due respect to the flow of ideas from all sides.

    I have an opinion to state that privatisation is necessary in today\'s India.

    The public sector is highly politicised and exceptionally bureaucratised.

    The public sector cannot operate without being managed by political and bureaucratic forces.

    Meritocracy cannot thrive in an environment of politicised bureaucracy.

    Without meritocracy excellence cannot be achieved.

    Without excellence market rewards cannot be received.

    Therefore Public Sectors in India will die a natural death if they are not privatised swiftly now.

    Posted by Ardhendu Kumar Bose,Vice President (Operations and Marketing) at Rose Valley Group of Companies|11 Feb, 2010

  • Moving to privatisation is good step towards economy as well as all round development of country. But the important question is first of all the system or mechanism must be transparent. The person involved in the whole process must be honest to the nation.Because by taking advantage of simplicity of national character and weakness in various laws the political leaders in power and beaurocrats take the advantage and sold the nation to a group of people. As a result the nation at large are suffering and these vested people by creating false data propogating that the nation is shining.

    Posted by Ashok Kumar Sahoo , Senior Manager(PR) at Paradeep Phosphates Ltd. | 11 Feb, 2010

  • This is the need of the hour to create a socially democractic- or PPP integrated model to run the whole system in India.

    Posted by Bhagirath , Director -Business development at twenty 4 seven 365 pspl | 11 Feb, 2010

  • Originally Public Sector was conceived as a method for 'commanding heights' of economy as there were not enogh capital in the hands of private people who manage private companies, according to the thinking of those in the control of the extant government. Now every one knows that actually a deliberate attempt to build a socialist economy was behind that argument, perhaps it was good, but failed in terms of results. It only created wealth in the hands of emmployees of the hundreds of PS companies and the controlling ministries and their bosses including ministers and politicians. Poverty still continues unabated towards commanding heights.
    Wether socialist or otherwise, the mission statements in the Constitution of India demanded economic progress at 100% population level. How can ...See More

    Posted by George Varuggheese , President at Godimages Good Governance Society | 11 Feb, 2010

  • I completely agree to Dr Kelkar's point of view. Privatisation of PSE's would not only lead to professionally managed environment but also a corruption free structure. In PSE's even today, management is in the hands of lethargic BABU's. These babu's, unless served with platter of gifts or money will not do your work for which they are actually designated to.

    Privatisation will add to the growth of the sector which will in turn add to the economy of state or country.

    Posted by Divya Shrivastava,Brand Manager at NV Group|11 Feb, 2010

  • The role of government is to develop the country as a whole. I agree with Mr kelkar that we must allow the privatisation of large PSE where we have completely developed private sector and these funds should be diverted to sectors like rural development, Rural education, Roads,Restoration of heritage, Cleaning of rivers,mass housing in cities,water purification etc.
    This additional income can be clubed with the taxes at state and central level and can be used where ever needed. But there must be a law that these funds can not be utitised to furnish govt bills. Neither central nor state govt is allowed to use these funds anywhere other than some defined developmental activities. The expenses of running any department of any govt has to bear by deaprtment itself. Why a tax payer ...See More

    Posted by Himanshu Gupta , Sr Manager at Lapp India pvt Ltd | 11 Feb, 2010

  • I think there is scope for privatization in many fields. We can even think about privatization of our Railways.

    Posted by Sripathy Ganta Achuthan,Managing Director at Sripathy Consultancy Services|11 Feb, 2010

  • There can be arguments for and against privatisation of PSEs. The stake holders on either side naturally may have few hidden intentions. Nevertheless, the success story of Telecom operation and the failure of PSUs in the most needed Telecom manufacturing, amply demonstrate the point. The other side of the story is that, with loosing out every lucrative industry in the country to totally private ownership, means government will have to look into other means to generate enough revenue for the evergrowing budgetory needs by enhanced duties and taxation. Also it would need need to have better monitoring methods and controls to ensure healthy market competition and adequate distribution of wealth amassed by private business houses towards the cause of nation building and socio-economic ...See More

    Posted by Abraham Paul,MD at FCOMNET - Futuregroups|10 Feb, 2010

  • Kelkar's views are correct as has been the experience of PSEs throughout the world including India, but his views have never found full acceptance in Government in India both when he was in Government himself and now when he is out of it. PSEs are not seen by politicians and significant sections of the public as well merely as economic institutions bound by laws of economics but are seen as social institutions representing a wide variety of political aspirations like socialism, public welfare, social security, national security and protection from capitalism and worst fears about competitive economic institutions in general. Till we shed the large cobweb of ideas about what PSEs can and cannot do well, Kelkar's views are not likely to succeed even though the Govt is headed today by an ...See More

    Posted by Chandra Shekhar A K,|10 Feb, 2010

  • Mr.Kelkar is a dynamic person who gives correct course of action at the right time we should have profeesinal privarte and public venture to truly unlock the value for benefit of the public tbruia

    Posted by tejkumar ruia,Chairman at Killick Nixon Ltd|10 Feb, 2010

  • I fully agree with view of privatisation of PSU,s. Govt. should concentrate only on governance and should avoid commercial business.

    Posted by BK Kansal,ADVISOR at SUNGLOBE FARIDABAD|10 Feb, 2010

  • I wish there had been more elaboration on \"dynamic determination\' in terms of the sectors he suggests or recommends.

    Nevertheless, there are no two views that there is no dearth of highly talented and experienced professionals who may actually take the PSEs to dizzy heights of success. Dr. Kelkar has very rightly pointed out that \'settling time\' needs to be given to the new management to \'perform\'. Imposing a lock in period on investors is a good strategy, however, one can also consider going in for a \'major shareholders agreement\' whereby it is mutually and irrevocably agreed that there wont be any counter / hostile takeover upsetting the apple cart.
    ...See More

    Posted by Sangeeta Varma,Proprietor at S V Associates, Company Secretary|10 Feb, 2010

  • If we go back to the basics, there is a need to settle the issue of whether government should be operating in the capacity of a business house or it should be performing a regulatory role to acheive the objective of just allocation of resources / production. Indian Economy has matured to an extend so as to do away from the post Independence era thought process of the government role to intiate large value projects.

    Having said that, I believe, the next issue to be resolved is in which Industry should goverment control be there? Given the contect, it could be defense related / sensitive sectors and all others should be in the public domain and governments policy should be aligned to disinvest from these sectors over a period of time whether through retail route or through ...See More

    Posted by Neeraj Prakash,|10 Feb, 2010

  • Most or even all of these companies are majority by President of India, who is the first among equals, as we all understand. As such this amounts to selling "family gold" for paying the policy lapses of yesterday. Thus in totality, whats happening is change of hands and nothing more.How can this be allowed? I wonder.

    Posted by Bhanu , DGM at Lanco group | 10 Feb, 2010

  • Can this be taken a little further ? So far public sector meant - public owned it 100% through the Government. Now public retailers are being allowed to own directly. What we are actually aiming is to professionalize (Privatization may not be the right word) some 100% owned companies. As long as top management appointments and decisions are still politicized, off loading shares only leads to Government getting rid of (passing on the burden) some shares to retail share holders. BHEL, NTPC etc like companies are doing very well as autonomous companies. What is needed is de-politicization and professionalization - this is especially so for stae government owned companies.

    Posted by MOHAN SADASHIV DIVEKAR | 10 Feb, 2010

  • The idea does seem good. The example of SAIL Vs - TISCo is a good example. In fact, even partial holding of private parties may initiate better strategy and may result in more productivity.

    Posted by Prasenjit Dasgupta , Head Strategic Planning at SIME | 10 Feb, 2010

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