Time to Bite the Bullet on PSU Reforms

Published: 24th July 2014 06:00 AM  |   Last Updated: 24th July 2014 12:32 AM   |  A+A-

Union finance minister Arun Jaitley’s announcement that four public sector undertakings (PSUs) would be shut down needs to be welcomed. He has also mentioned that attempts would be made to revive seven other sick companies through the disinvestment process. This is an indication that the BJP-led government is ready to bite the bullet when it comes to reviving the economy. It is no secret that a large number of PSUs has been causing enormous loss to the national exchequer. Out of 79 PSUs that have incurred losses, as many as 49 are sick. Many of them don’t deserve to exist. The government has invested a total of `1.5 lakh crore in such companies.

The Vajpayee-led NDA government had sold some PSUs to the private sector and tried to raise resources through the disinvestment process. The UPA government, which succeeded it, could not carry on the reform process as there was no consensus in the Congress and its allies on the closure of sick PSUs. As a result, huge sums of public money was pumped into such enterprises, not to revive them but to pay salaries and perks to their staff. In the case of some PSUs, it would have been cheaper to pay salaries than to run them, which entailed an additional expenditure. It is against this backdrop that his order to either shape up or shut down should be seen.

The minister has mentioned that 19 PSUs have been able to turn around and make profit. However, the question is not about the profitability alone. There was a time when the PSUs had some relevance because the private sector was not strong enough at the time to set up steel, heavy industries and fertiliser plants. Just as it is not the job of the government to run hotels, there is no rationale for it to run cement plants, which are dime a dozen in the private sector. The earlier the government withdraws from such enterprises the better it would be for the exchequer. Reform of PSUs should, therefore, be central to the government’s plan to revive the economy.

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