Governance of Public sector units: Privatization of SAIL

Source- The Hindu Business Line

Syllabus- GS 3- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Context- To decentralize decision-making and facilitate more informed investment decisions, the Centre has restructured the board of Steel Authority of India (SAIL).

How Privatization of SAIL can boost their business?

The Appointments Committee of the Cabinet (ACC) has approved the restructuring of the Board of Steel Authority of India Limited (SAIL).

1. Decentralization– This move will facilitate greater decentralization and nimble decision making with the directors-in-charge of plants as direct ACC appointees with their views having weight in the central corporate governance structure.
   • This will also facilitate speedy modernization and expansion programme of SAIL.
   • This decentralization will also ensure there is greater transparency.
2. Attract investment– The government’s exit will attract private investment and contribute to the exchequer, enabling higher public investment.

What is CPSEs?

Central public sector enterprises (CPSEs) are those companies in which the direct holding of the Central Government or other CPSEs is 51% or more.

Role- CPSEs have always played a crucial role in executing the socio-economic development agenda of the government as an extension of the government apparatus.

• During recent lockdown period, CPSEs ensured that essential services such as power, fuel and food-grain supply remain uninterrupted.
• They are carrying out capital expenditure works/infrastructure development activities of approximately ₹2 lakh crore in the sectors of petroleum, power, defence, mining, logistics, etc.
• CPSEs not only act as a catalyst for other economic activities but would also provide informal employment during the construction phase.

What are the arguments in favour of privatization?

1. Efficiency– One of the strongest arguments in favour of privatization aired by its supporters is the dismal performance of the PSEs and, thus, its inefficiency can be removed if these enterprises are privatized.
   • Governments jobs are often taken for granted and have no difference between a performer and a non-performer when considering productivity.
   • Privatization will usher in an improvement in efficiency and as improved performance is concerned with ‘profit-oriented’ decision-making strategy.
2. Lack of political interference– Indian PSEs are subject to too much governmental and political interference thereby making them operationally inefficient. Private sector is free from such unavoidable interference. They are motivated by political pressures rather than sound economic and business sense.

• A most important component in enhancing the performance of a PSU is reduced intervention by political powers and preventing misuse of infrastructure by all.

Way forward-

• Privatization has become a popular measure for solving the organizational problems of governments by reducing the role of the state and encouraging the growth of the private sector enterprises.
• Privatization should be in a unique form in accordance with the priorities of our mixed economy and as well as by considering operational aspects of the PSUs.