Rationale
The Government of Punjab has been under fiscal stress since 1984-85, when it became a ‘Revenue Deficit State’ from ‘ Revenue Surplus State’, for the first time. Punjab had the dubious distinction of being the first among all States in terms of deficit in 1990-91. There was some fiscal consolidation in the early 1990s, but an intensification of the deficit problem in recent years has again given the State the distinction of being the 2nd and 3rd highest in 1997-98 and 1998-99, respectively.
The factors, which have been adversely impacting the State’s fiscal over the last decade and a half are ever increasing salaries and wage bill of the employees, mounting debt burden, heavily subsidized social and economic services, slow growth of revenue and loss making Public Sector Undertakings.
Punjab’s finances are afflicted both by structural problems and problems of cash-flow management. One of the first major manifestations of the problem came in April 1999, when Punjab’s overdraft with the Reserve Bank of India was of Rs. 775 crore, for the 8th consecutive day, calling for urgent corrective action. Following up on the decision of the National Development Council that the Government of India (GOI) would provide assistance to the State Governments, linked to measures to strengthen the financial situation, the Government of Punjab signed a Memorandum of Understanding (MOU) with the GOI (Annexure). The MOU listed the following measures for improving the fiscal situation: reduction in non-plan revenue expenditure, reduction in subsidies through improved cost recovery for both social and economic services, withdrawal of tax incentives to industries, departmental plans for further reduction in subsidies, disinvestment, reform of tax regime, increase in various taxes, fees and sale of government land, improvement in management of public debt, with the aim to arrest growth in public debt, water charges for achieving economic pricing of irrigation, and reform of the power sector, with rationalisation of power tariffs.
There are 39 Public Sector Undertakings (PSUs) and Co-operative Apex Institutions of Punjab Government, where the State Government has any stake in the form of equity, debt or guarantee. Total amount of equity in these PSUs and Cooperative Apex Institutions is Rs.3369.80 crore as on 31st March, 2001. The total amount of loans outstanding taken from the Government stood at Rs.4864.25 crore as on 31.03.2001. The outstanding loans of other Institutions were Rs.19464.95 crore as on 31.03.2001, and out of these loans Rs.18707.12 crore were against Government guarantee. In case of default it is the bounden duty of the State Government to repay the loan to the lenders. (Table – 28 & 29)
The State Government had decided that the PSUs and Apex Co-operative Institutions should give at least a modest return of 4% on the equity invested by the State Government. However, none of the PSUs except Punjab Small Industries and Export Corporation, HOUSEFED, MARKFED, Punjab State Co-operative Bank, Punjab State Co-operative Agricultural Development Bank and MILKFED have paid any return upto 31.03.2001. The Government has so far received only a small amount of Rs.8.40 crore as dividend on huge investment of over Rs.3300 crore in these PSUs and Co-operative Institutions. The State Government has constituted Public Sector Disinvestment Commission to finalize a comprehensive disinvestments programme keeping in view the policies and priorities of the State Government.
The primary objectives for privatising the PSEs are, therefore, as follows:
Releasing the large amount of public resources locked up in non-strategic PSEs, for redeployment in areas that are much higher on the social priority, such as, basic health, family welfare, primary education and social and essential infrastructure;
Stemming further outflow of these scarce public resources for sustaining the unviable non-strategic PSEs;
Reducing the public debt that is threatening to assume unmanageable proportions;
Transferring the commercial risk, to which the taxpayers' money locked up in the public sector is exposed, to the private sector wherever the private sector is willing and able to step in;
Releasing other tangible and intangible resources, such as, large manpower currently locked up in managing the PSEs, and their time and energy, for redeployment in high priority social sectors that are short of such resources.
The other benefits expected to be derived from privatisation are :
Disinvestment would expose the privatised companies to market discipline, thereby forcing them to become more efficient and survive on their own financial and economic strength or cease. They would be able to respond to the market forces much faster and cater to their business needs in a more professional manner. It would also facilitate in freeing the PSEs from Government control and introduction of corporate governance in the privatised companies.
Disinvestment would result in wider distribution of wealth through offering of shares of privatised companies to small investors and employees.
Disinvestment would have a beneficial effect on the capital market; the increase in floating stock would give the market more depth and liquidity, give investors easier exit options, help in establishing more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatised companies for their projects or expansion, in future.
Opening up the public sector to appropriate private investment would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium to long term.
In many areas, e.g., the telecom sector, the end of public sector monopoly would bring relief to consumers by way of more choices, and cheaper and better quality of products and services - as has already started happening.
