It’s no new news to us that the Indian Government is trying to sell the railways, Air India, BPCL, public sector companies, and banks to private sector companies for a long time. But will the current government try to sell everything one after another? What is the reason behind them in doing so? Why now? How are we, as citizens of India, benefiting from it? Is privatisation good or bad?
What is Privatisation?
One thing that needs to be clear here is that privatisation does not mean that the government is trying to sell everything. No. Trying to understand what its definition is –
The transfer of ownership, property, or business from the government to the private sector is privatisation.
In simple words, when the private-owned companies acquire 51% shares, assets, or stakes of public-owned companies, its called privatisation.
A few might say that privatisation is good for our country, a few will say otherwise. Both might be correct in their places. But I feel that if privatisation rightly used, then it might turn out to be good for our economy. Now people might say that if it were that good a concept, then India would have a long time ago privatised banks, BPCL, railways, and so forth.
But to understand this better, we need to know our economic situation. Back in 1947, when India got independence, we had very conservative policies, there were hardly any global deals, transactions, or even private-sector companies. So mostly, the people were dependant on the agricultural sector for the longest time. And because of this conservative economic policies, India was not able to grow. Hence, we observed an Economic Crisis in 1991. And to tackle this situation, the then Finance Minister, Dr Manmohan Singh introduced some major economic reforms like LPG reforms and the liberalisation of the Indian economy. Just think, if privatisation was an immoral concept, Dr Manmohan Singh and P.V. Narasimha Rao would not have introduced the LPG reform during the crisis at all. But this was the very beginning of the private sector companies getting a hold in India. And now that we have enough private-owned companies, the current government wants them to play a role in growing India’s economy.
So now you know why the government did not privatise the private sector before.
Merits of Privatisation
Corruption is everywhere and in every country. The only difference is somewhere its more and somewhere less. Talking about India, we all know what is the state of the government sector, from peons to senior officers everyone’s corrupt. Moreover, most of us might have experienced, we have to wait for hours for the smallest work, and even then, they need green notes to work further. But this is not the case in the private sector. Not like it is corruption-free but when compared to the public sector, its far less than them.
Needless to say anything, the private sector is known for its virtuous service. One example would be, we see a whole lot of difference in private banks and public banks.
Privatisation is a free market. Anyone can start a business which leads to increased competition because of which the product value decreases.
The main argument for privatisation is that private companies have more profit incentives to cut costs and be more efficient. So if you work well, you’ll get incentives which is the biggest motivation for the employees to work hard.
Lack of Political Interference:
No political interference leads to more efficiency, and the outcome is better driven.
Shortcomings of Privatisation
It occurs when the most efficient number of firms in an industry is one. It is a situation when a firm realises economies of scale in producing the market demand of output at a lower average cost than two firms could with smaller-scale processes. However, with changing times, the governments have realised this and introduced pricing policies such as-
- Price capping by regulators RPI-X
- Regulation of quality of service
- Merger policy
- Yardstick or ‘Rate of Return’ Regulation
Many industries perform an imperative public service, e.g., health care, education, and public transport. In these industries, the profit motive shouldn’t be the primary objective of firms and the industry.
Our Railway Minister, Piyush Goyal announced that the government wants to make the best railways in the world by 2030 for which they need Rs. 50,000 crores investment. So the whole situation starts from here. From where does the government get the said amount?
So, they are getting private sector companies to invest in railways. The Indian Railways currently faces massive constraints on the supply side and is unable to meet the demand for the passenger segment. Presently, the railways run around 13,000 passenger trains on its network, but 20,000 trains are required to meet the demand. And to make the deficit 7,000 trains government requires funds. Right now, we are void of funds that are needed for railway development that is new rail line construction, electrification, etc.
Enthused by the Japanese Model for the privatisation of railways, we are following the same steps in India.
How much will the private sector be involved?
On July 1, 2020, the Railway Ministry announced that 151 trains in 109 pairs of routes are going to be operated for 35 years by private sectors. The private sector will invest Rs 30,000 crores. Importantly, it is only 5% of the total train operation that is qualified for bidding for the private sector. And that too just for 35 years and not for a lifetime.
For the project, the routes are going to get divided into 12 clusters based out of major city centres, like Jaipur, Howrah, Chandigarh, Bengaluru, Patna, Secundrabad, Prayagraj, Chennai, and two each for Mumbai and Delhi. And these are those specific places where the trains aren’t-
- Services are not up to the mark.
- Operational work is slow.
So every cluster will be allotted to 12 private companies by a bidding system which will help the government earn Rs. 30,000 crores minimum. Each bidder will be eligible for the award of a maximum of three clusters, according to the paper.
The process of the bidding process will be over by this financial year-end. By 2022-23, the first set of 12 trains is likely to roll out, following with 45 trains in 2023-2024, 50 trains in 2025-26, and the remaining 44 trains in 2026-27.
The management work in all these clusters will be taken care of by private companies like punctuality, reliability, and maintenance of trains. In this, punctuality is the principal parameter, carrying around 95 per cent weightage. Even the trains are going to be made by these companies. Only the driver and guard will be railway employees; all other employees will be of the private company, who is operating the train. The private companies are free to procure trains and locomotives from any source of their choice. In failing to do so, they are going to be levied with a penalty.
The said trains are going to be like Tejas and Vande Bharat with a speed of 160km/hr. And all the jobs of railways will be given by Indian railways itself.
What will Indian Railways get?
It’s not just the bid amount of Rs.30,000 crores that they are getting. In this business model, the private operator is supposed to share revenues, energy charges, and fixed transportation charges with Railways. The qualifying company that agrees to stake the maximum percentage of the yearly returns with Railways will win the bid.
To start with, Railways will now use technology, and Artificial Intelligence to set up the dynamic pricing of rail tickets, which will replace the existing ‘Flexi-fare’, which is applicable for a few premium trains. Under dynamic pricing, the price change would happen purely on the demand-supply rule and the period of the booking.
Is Privatisation good for India?
In my opinion, yes, it is good. But don’t mistake it for full privatisation. I feel that India is in urgent need of a Public-Private-Partnership (PPP) Model in sectors like banks, railways, and Air India. But when it comes to privatising BPCL, I don’t think it’s necessary at all. Well, the economy is pretty down right now which is 23.9% due to Corona, and the government does not have enough money to revive the economy, so the best way would be to involve private players.