Selling Public Goods: Privatising Welfare, One Sector at a Time

The uses of privatisation are limited to how we understand what we mean by a “commodity.”

In July 2019, the National Democratic Alliance government at the centre announced that attempts to privatise Air India ought to be re-initiated, after the government failed to secure a single bid for a stake in the airlines in May 2018. Also in July 2019, Lieutenant General Sarath Chand, the Vice Chief of the Army Staff questioned the efficiency of ordnance factories saying that they have not kept pace with changing technology. In April 2019, the government had invited the private sector to participate in tenders to supply defence production. At the Budget 2019 presentation this year, finance minister Nirmala Sitharaman proposed public–private partnerships where ever possible, such as in railways, where she claimed that the government does not have the means required for heavy modernisation. Over the last few years, concerns have also been raised over the privatisation of public goods like education.

The primary benefit of privatisation is that it reduces the fiscal burden of government-owned industries. In addition, privatisation is supposed to bring better management and efficiency to the industry which would allow the private sector to take care of social needs at market rates. This logic can be applied well to profit-driven factories that make non-essential, material commodities. But when applied to public goods such as education, electricity, transport, etc, the overarching need to make a profit can overshadow the need to guarantee social welfare. But as T T Ram Mohan has observed, the conditions under which privatisation has been successful has been limited, and tends to show better results in developed economies. The quality of public goods does get affected when operating at a loss, for significant periods of time. Therefore, there is a need to find a middle ground that can allow governments to ensure social welfare by maintaining both the quality and price of public goods. 

In this reading list, we look at some of the public sector initiatives that are opening up to privatisation in India. 

1) Electricity

Privatisation in electricity was enabled through the Electricity Act, 2003, which attracted a large number of private companies to invest in thermal power generation. But as Kannan Kasturi’s 2016 article points out, private interest soon petered out. The article shows how the private thermal power sector was unable to optimally utilise resources. Kasturi also pointed out how the initial rush to build infrastructure for the plants led to domestic manufacturing suffering as contracts for the same were given to foreign companies. 

The changing economics of thermal power production, however, quickly led to this interest petering out. The majority of proposed projects were abandoned, but not without cost to the communities of the area they were to be located in. Of the rest, only a few are operational with partial capacity, while others are under construction with delayed schedules or have gone into limbo. The location of the functional plants serves to further exacerbate the regional imbalance between demand and generation capacity. Not being able to sell their electricity locally because of lack of immediate demand and in power deficit regions because of the lack of adequate transmission capacity to load centres, these plants idle or run at low PLFs even as parts of the country reel under severe electricity shortage. 

2) Education

With regard to education, the University Grants Commission has been introducing several measures to the public education system to make it easier for private entrants. Narender Thakur writes that the haste with which several successive governments have been seeking to privatise education demonstrates that private interests are interfering with social welfare. The net result of privatisation in education will end up making education a commodity rather than a tool to eliminate social disprivilege. 

The policy of successive governments has been based on the neoclassical economics framework, with a goal to make higher education a profit-oriented and tradable commodity (Patnaik 2015). In the last two decades, one has witnessed a consensus among the ruling class to liberalise higher education (Mazumdar and Sunand 2015). Whether it was the introduction of the Four Year Undergraduate Programme (FYUP) in 2013 under the United Progressive Alliance (UPA) government or the Choice Based Credit System (CBCS) under the National Democratic Alliance (NDA) government in 2015, the aim has been to tailor the curriculum to facilitate privatisation in the sphere of higher education.

3) Financial Services

Public banks have suffered capital losses and taken the brunt of non-performing assets (NPAs), so it has become increasingly difficult for them to survive without government support. But as C P Chandrasekhar has pointed out, the survival of these banks has largely depended on selling a part of the NPAs to asset reconstruction corporations (ARCs) at a heavy discount. The ability of the government to recapitalise these banks by writing off bad debts is limited. Financial assistance provided to these banks has been about Rs 50,000 crore between 2015 and 2017, which falls woefully short of the Rs 5 lakh crore of gross NPAs on the books of the banks at the end of March 2016. Consequently, privatisation is being considered as a solution. 

The Narendra Modi government appears to have decided to privatise public sector banks (PSBs). Preparations are underway with arguments being marshalled that “there is no alternative” to privatisation. Noises of this kind have emanated often from the Reserve Bank of India (RBI) and government spokespersons, but opposition from the unions and democratic forces inside and outside Parliament have made them just that—noises. Creeping disinvestment was the answer, but control has remained with the state. But now the advocates are getting pushy. While the governor of the RBI and the finance minister have made addressing the problem of weak banks and dealing with non-performing assets (NPAs) the main economic challenges facing the country, the recently appointed deputy governor of the RBI, Viral Acharya, appears to have taken on the task of laying out the road map to reprivatisation of public banks, the time for which has possibly finally come.

4) Health

Even in healthcare, Abhay Shukla argues that schemes like Ayushman Bharat will only divert public resources to the private sector through private hospitals and commercial insurance companies. Schemes to actually improve healthcare within the infrastructure available to the government remain underfunded. 

Putting everything together, the driving logic of the union government in the health sector during the last five years becomes clear: constricting funds for major programmes such as the NHM and RCH leading to under-resourcing of public systems, with negative implications for low-income populations; promoting profiteering by the private sector in both healthcare and pharmaceuticals, by refusing to implement regulations which are essential to protect public goods; and diverting already scarce public resources towards private entities through a health insurance scheme that is of doubtful benefit to health of communities, but would boost the financial health of select insurance companies and corporate hospitals.

Read More: 

Privatisation Strategies in Developing Countries-External Debt and Domestic Economic PerspectivesNarayanan Edadan, 1997

Mission Impossible: Defining Indian Smart Cities | Sama Khan, Persis Taraporevala and Marie-Helene Zerah, 2018

BEST under Threat of Privatisation | EPW Editorial, 2019

Privatising the RBI | 2018

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