From Public to Private: All You Need to Know about Privatization of PSUs

PSUs or Public Sector undertakings have been making the headlines in recent years. The Indian government has been majorly focusing on PSUs. With an aim to boost the Indian economy's growth, improve efficiency, and reduce the financial burden on the state, the government has taken significant steps to transfer ownership of key PSUs to private hands.

Some well-known examples of privatization include the LIC sale, Air India privatization, and the proposed BPCL disinvestment. These moves are part of larger economic reforms that aim to increase Indian economy growth by involving the private sector in areas previously controlled by the government.

Let us understand the meaning of privatization and how it will affect us.

What is Privatization?

To begin with, Public Sector Undertakings (PSUs) are companies owned and run by the government. PSUs Privatization means transferring the ownership and management of government-owned companies (PSUs) to private players. These PSUs were originally set up to serve the public interest and promote industrial growth and create employment. However, over time, many of them started facing issues like inefficiency, low profits, and poor management.

To tackle this, the government started a disinvestment strategy, where it either sells a part or full stake in these companies. When more than 51% stake is sold, the company becomes privately owned and this is what we call privatization.

Major Companies That Are a Part of The Privatization Move

• LIC - Life Insurance Corporation of India (LIC) is one of the largest and oldest insurance companies in India. In 2022, the government sold a part of LIC’s shares to the public through an IPO (Initial Public Offering). This was a big step as LIC had always been a fully government-owned company. The LIC sale aimed to raise money for the government and increase transparency and accountability.
• Air India - Air India has been the pride of our country but not many knew that this airline was running at a loss for many years. That’s when the Indian Government sold it to the Tata Group, the same company that originally founded it. This Air India privatization was seen as a necessary move to stop the airline from draining public funds and to improve its services through private sector expertise.
• BPCL (Bharat Petroleum Corporation Limited) - BPCL disinvestment has been a key agenda for the government. The plan involves selling the majority stake in Bharat Petroleum Corporation Limited, one of India’s top oil marketing companies. The privatization of BPCL is expected to bring in large revenues for the government and improve operational efficiency.

Why is The Government Privatizing PSUs?

• Improve economy - Privatization can bring in investment and create more job opportunities.
• Reducing the burden from the government - Many PSUs are making losses, and the government spends a lot of money to keep them running. Privatization can help the government from these losses.
• To raise funds: Selling PSUs helps the government earn money, which it can use for development projects and infrastructure.

The Role of Public-Private Partnership (PPP)

Apart from full privatization, the government also uses the Public-Private Partnership (PPP) model. In this, both the public and private sectors work together to provide services or build infrastructure. This helps combine public sector goals with private sector efficiency.

For example, several roads, airports, and hospitals in India have been developed using the PPP model. This model allows the government to provide better services without bearing the entire cost or risk.

PSUs have been a major part of the Indian economy. But since the past few years, the government has faced several challenges to maintain them. The privatization of PSUs, including the LIC sale, Air India privatization and many others have majorly contributed to the growth of the Indian economy. So, is Privatization of PSUs a good decision? The simple answer to this would be – If it benefits both the economy as well as people then it is good.