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Critically analyse the rationale behind divestment and strategic sale of Public Sector Units (PSUs) and its possible macroeconomic impacts.

Topic: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

5. Critically analyse the rationale behind divestment and strategic sale of Public Sector Units (PSUs) and its possible macroeconomic impacts. (250 words)

Difficulty level: Tough

Reference: The Hindu

Why the question:

In this year’s Budget, the government unveiled a bold new disinvestment policy that envisages a bare minimum presence of government-owned businesses even in the strategic sectors.

Key Demand of the question:

To understand why Governments go for sale of government owned businesses, including transfer of management and control and the economic repercussions of the move.

Directive word: 

Critically analyze – When asked to analyze, you must examine methodically the structure or nature of the topic by separating it into component parts and present them in a summary. When ‘critically’ is suffixed or prefixed to a directive, one needs to look at the good and bad of the topic and give a balanced judgment on the topic.

Structure of the answer:

Introduction: 

Begin by mentioning the recent sale of Air India by the government to the Tata group.

Body:

First, mention the intent behind divestment/strategic sale such as greater administrative efficiency of private management, getting rid of loss-making units, rationalisation of resources and manpower etc. On the contrast also bring out the reasons for low performance of PSUs such as lack of commercial autonomy, lower pecuniary benefits etc.

Next, highlight the macroeconomic impacts such as fiscal stimulus in the economy, more resources with the Government for investment in infrastructure projects, loss of jobs etc

Conclusion:

Conclude by stating that divestment/strategic sale must be taken up with utmost caution and only where it is absolutely prudent else it may lead to loss of assets and revenue of the government in the long run.