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Critically analyze the rationale behind divestment of profit-making 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 analyze the rationale behind divestment of profit-making Public Sector Units (PSUs) and its possible macroeconomic impacts. (250 Words)

Reference: Indian Express

Why this question

The government is going ahead with the disinvestment of its profitable PSUs e.g. LIC through the market route, despite an economic slowdown due to Ukrainian crisis.

Key Demand of the question:

To understand why Governments go for sale of government owned businesses, including transfer of management and control of profitable PSUs 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 plan to divest government stakes in Profit making PSUs.

Body:

First, mention the intent behind divestment/strategic sale such as greater administrative efficiency of private management, getting rid of loss-making units, rationalization of resources and manpower etc.

In contrast also bring out the reasons for low performance of PSUs despite being profit-making, such as lack of commercial autonomy, lower pecuniary benefits etc.

Also, some PSUs are strategically important e.g. LIC has always been known to be the investor of last resort, intervening in the market to minimise volatility. It has also been proactive in ensuring that several disinvestment plans of the government are fructified by becoming the buyer.

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.