Read the extract given below and answer the questions that follow : E

1.	Read the extract given below and answer the questions that follow : Economic Times, April 12,2018, New DelhiNEW DELHI : The Tata Group remains in the race for Air India, the debt-laden national carrier on which IndiGo, Jet Airways and Emirates are no longer keen. Other airlines still interested in participating in the privatisation of Air India include Lufthansa and Singapore Airlines. Reuters on Wednesday reported that the Tata Group is not interested in bidding for Air India. But sources told ET that the Tata’s have not pulled out, and are still interested in acquiring Air India along with a foreign partner. Meanwhile, in another move that will allow bidders to change members between the initial and final bidding stages, likely suitors for Air India have sought a relaxation in the norms for consortia participating in the debt-laden carrier’s privatisation.(i) Explain any two ways in which the government can undertake privatisation of public sector units.(ii) State three reasons for the need for privatisation.
Answer» (i) 1. Contraction of Public Sector : Number of industries reserved for the public sector has been reduced from 17 to 8. And now only 3 industries (namely, atomic minerals, atomic energy and rail transport) are reserved for the public sector. Hence, even core industries like iron and steel, electricity, air transport, shipbuilding, heavy machines and strategic industries like defence productions have been opened for the private sector. 2. Policy of Disinvestment: Selling off a part of the equity of public sector undertakings is called disinvestment. According to the government, the purpose of disinvestments of shares of PSUs was to raise resources for the budget to reduce fiscal deficit and to provide funds for the modernisation of PSUs. The government has adopted two methods of disinvestments – (i) selling of shares in select PSUs and (ii) strategic sale of a PSU. Disinvestment was primarily through sale of minority shares in small lots. Under the . latter method, the government started selling major part of its stake one or another a private sector company. It resorted to strategic sales of a number of companies. Modem Foods India, Bharat Aluminium Company (BALCO), Videsh Sanchar Nigam Ltd. (VSNL), Maruti Udyog Ltd. (MUL) etc. are examples of strategic sales. At present, the emphasis is to list large profitable PSUs on domestic stock exchanges and to sell their equity in small portions. (ii) (a) Poor performance of Public Enterprises : In view of the poor performance of public sector undertakings, public sector has become an economic burden on the national economy. (b) Rising Budgetary Deficits : The budgetary deficits in India are increasing considerably and further contribute to rising prices. To reduce budgetary deficits, the scope of public sector should be contracted and that of private sector be expanded. (c) High Capital Output Ratio : The capital output ratio in the economy has been increasing particularly for the public sector. It is likely to increase further. High capital output ratio in the public sector demands privatisation. In short, as private enterprises are motivated by profits, they take right economic decisions. This will avoid the wastage of resources. Hence, the economy is expected to show greater efficiency and productivity under privatisation.

Read the extract given below and answer the questions that follow : Economic Times, April 12,2018, New DelhiNEW DELHI : The Tata Group remains in the race for Air India, the debt-laden national carrier on which IndiGo, Jet Airways and Emirates are no longer keen. Other airlines still interested in participating in the privatisation of Air India include Lufthansa and Singapore Airlines. Reuters on Wednesday reported that the Tata Group is not interested in bidding for Air India. But sources told ET that the Tata’s have not pulled out, and are still interested in acquiring Air India along with a foreign partner. Meanwhile, in another move that will allow bidders to change members between the initial and final bidding stages, likely suitors for Air India have sought a relaxation in the norms for consortia participating in the debt-laden carrier’s privatisation.(i) Explain any two ways in which the government can undertake privatisation of public sector units.(ii) State three reasons for the need for privatisation.

Answer»

(i) 1. Contraction of Public Sector : Number of industries reserved for the public sector has been reduced from 17 to 8. And now only 3 industries (namely, atomic minerals, atomic energy and rail transport) are reserved for the public sector. Hence, even core industries like iron and steel, electricity, air transport, shipbuilding, heavy machines and strategic industries like defence productions have been opened for the private sector.

2. Policy of Disinvestment: Selling off a part of the equity of public sector undertakings is called disinvestment. According to the government, the purpose of disinvestments of shares of PSUs was to raise resources for the budget to reduce fiscal deficit and to provide funds for the modernisation of PSUs. The government has adopted two methods of disinvestments – (i) selling of shares in select PSUs and (ii) strategic sale of a PSU. Disinvestment was primarily through sale of minority shares in small lots.

Under the . latter method, the government started selling major part of its stake one or another a private sector company. It resorted to strategic sales of a number of companies. Modem Foods India, Bharat Aluminium Company (BALCO), Videsh Sanchar Nigam Ltd. (VSNL), Maruti Udyog Ltd. (MUL) etc. are examples of strategic sales. At present, the emphasis is to list large profitable PSUs on domestic stock exchanges and to sell their equity in small portions.

(ii) (a) Poor performance of Public Enterprises : In view of the poor performance of public sector undertakings, public sector has become an economic burden on the national economy.

(b) Rising Budgetary Deficits : The budgetary deficits in India are increasing considerably and further contribute to rising prices. To reduce budgetary deficits, the scope of public sector should be contracted and that of private sector be expanded.

(c) High Capital Output Ratio : The capital output ratio in the economy has been increasing particularly for the public sector. It is likely to increase further. High capital output ratio in the public sector demands privatisation. In short, as private enterprises are motivated by profits, they take right economic decisions. This will avoid the wastage of resources. Hence, the economy is expected to show greater efficiency and productivity under privatisation.

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