How privatization and data monetization can solve India’s fiscal deficit problem

Examining the realized efficiency gains from privatization in the Indian context, the survey analyzed the before-after performance of 11 Central Public Sector Enterprises (CPSEs) that had undergone strategic disinvestment during 1999-2004. Comparing such privatized CPSEs with their peers in the same industry group, showed that on an average, they performed better post privatization than their peers in terms of their net worth, net profit, return on assets and equity, gross revenue, net profit margin, sales growth and gross profit per employee.

More notably, the return on assets and net profit margin turned around from negative to positive, surpassing that of peer firms. This indicated that privatized CPSEs could generate more wealth from the same resources. The improved performance held true even if each CPSE was considered individually. The analysis clearly affirmed that privatization unlocks the potential of CPSEs to create wealth.

Evidently, it is established that businesses which are outside the control of government perform very differently and more efficiently, thereby enhancing value for all concerned. Post this guidance in the Economic Survey, under the Atmanirbhar Bharat program too, Finance Minister Nirmala Sitharaman announced that public sector firms in non-strategic sectors will be privatized. Also, no more than four public sector undertakings, to be notified, will remain in the strategic sectors category.

The intention of the government indeed appears clear and rightly placed. The need now is for speedy execution – any delay will only mean erosion in value. The market value of listed PSUs has come down by almost by 40 per cent in the last one year even as the overall market went up in the same period. Besides this, the government had to contribute additional capital for some of the PSUs and approve additional borrowings by them from the market. The situation of the unlisted PSUs is expected to be no different.

A lot of time has been lost in debating over the right method of disinvestment– strategic sale to the highest bidder, sell down in the market to dilute below 50 per cent, a professionally-managed holding company to own government stake in the PSUs, or a combination of these. But there is no one right answer. Going by the Economic Survey which examined the UK and Singapore models of privatization, different countries have followed different models. While there are a variety of methodologies to achieve this objective, no one solution will meet all the criteria. However, any solution will be better than inaction and this transition will be beneficial for all the stakeholders.

Beyond traditional areas to create value

Furthermore, the government should start contemplating a new phase of privatization. It should take a holistic view of the units which are not corporatized and in which the private sector can bring more efficiency or value. For example, post offices are struggling as they have not kept pace with the rapid changes in technology. However, the value of their largest physical network in the country can still be unlocked through forward integration with a bank or a business correspondents’ (BC) service. Additionally, involvement of private sectors in local bodies like municipal corporations, township management, etc. can bring a lot of efficiency not only in the service quality for the user but will also reduce the burden on the government.

Data is the new govt asset
Over the last few years, the government and its agencies have acquired a goldmine of data with roll-out of initiatives like GST, Aadhaar, FASTag, e-bills, banking data with regulators, etc. Management and monetization of this large pool of data can be more effective and revenue-generating with private sector partnership with all relevant data protection covenants. Some of this data may already be getting used by the private sector for expanding their business and reach. An adequate framework on right mining and monetization of this can be invaluable for the government. Given the focus on digitization, the data can be used more productively and generate value for everyone.

This government has been taking several difficult but firm decisions. Putting the PSU strategy in the pole-position will go a long way in changing the face of the country and its economy. Privatization and data monetization together can provide a long-term solution for the country’s fiscal deficit. They can be a revenue generating device for the government, and at the same time it is a great tool to manage resources much better. These are certainly a win-win for all.